October 2023
As the economy begins to sputter, Bill Ackman said that the Fed is likely finished raising interest rates. “High mortgage rates, high car rates, high credit card rates — they’re starting to have an impact on the economy,” he said to CNBC.
The Federal Reserve is probably done raising interest rates as the economy starts to show signs of slowing down, according to Ackman, CEO of Pershing Square Capital Management, but he warned that spillover effects will persist.
Since March 2022, the central bank has raised interest rates 11 times to combat inflation, which was escalating at its fastest rate in four decades. However, the most recent estimate on consumer prices showed a 3.7% annual increase, still above the Fed’s 2% target. Since then, inflation has dramatically decreased.
In its meeting last month, the Fed held interest rates unchanged while indicating that more rate increases were not ruled out. But Ackman no longer has any expectations.
“I believe the Fed is likely finished. I believe the economy is beginning to slacken. In an interview with CNBC on Monday, Ackman said, “I think the level of real interest rates is high enough to slow things down. “High credit card rates, high auto insurance rates, and high mortgage rates are beginning to have an effect on the economy. Although still strong, the economy is unquestionably deteriorating.
Even yet, he continued, bond yields may continue to rise as the market prices in the possibility of significant inflation.
The 30-year Treasury yield increased by 9 basis points to 4.8% as of October 2 while the 10-year yield increased by as high as 13 basis points to reach 4.7%.
Ackman told CNBC he expects the 30-year yield to keep rising “into the mid-5s” but doesn’t anticipate the 10-year yield to rise “meaningfully above 5%” given the economy’s apparent weakness.
“We believe structural inflation will be consistently higher over the long term. He repeated his demand from August, when he announced he was betting against 30-year Treasurys due to persistent inflation, saying the government shouldn’t be able to borrow at four and three-quarters, fixed, for 30 years.
Real estate markets have been impacted by the recent rise in mortgage rates and US bond yields during the previous 1.5 years.
Ackman emphasized that the majority of large enterprises and homeowners took out long-term fixed-rate loans at lower rates. But individuals who took out loans with shorter repayment terms have a problem.
“People who have borrowed short-term at a low-fixed rate, who are getting repriced — you look at a lot of commercial real estate investors — are going to have a very challenging period,” said Ackman. “I believe that to be the biggest threat.”
He issued a warning last month that the commercial real estate market was beginning to experience office asset defaults and increasing strain on the local banking system.
