With inflation the worst it’s been in four decades, prominent business leaders and economists have joined hands to warn that it might be too late for the U.S. to avoid a recession.
Now Bill Ackman, founder and CEO of Pershing Square Capital Management, has added to the chorus of voices blaming the Federal Reserve for its perceived slow response to the consumer price crisis.
“The @federalreserve has allowed inflation to get out of control. Equity and credit markets have therefore lost confidence in the Fed,” he tweeted on Tuesday. “Market confidence can be restored if the Fed takes aggressive action with 75 bps tomorrow and in July, and a commitment to continued aggressive FF increases and QT until it is clear that inflation has been tamed.”
FF refers to the Federal funds rate, the baseline interest rate which the Fed sets as guidance for commercial banks to lend to each other. QT refers to quantitative tightening, a monetary policy tool that central banks use to combat inflation.
The Fed has already increased its baseline interest rate twice this year in its attempt to rein in inflation—first with a 25 basis point (bp) hike in March, and again with 50 bps in May. On Wednesday, the bank is expected to announce a third increase following a meeting of the Federal Open Market Committee (FOMC), which determines its rates.
“And yes, 100 bps tomorrow, in July and thereafter would be better,” added Ackman, arguing that the sooner the Fed can stop inflation from increasing, the sooner markets will be able to recover from it.
Last week, optimism that elevated prices were beginning to calm turned into anxiety when the Bureau of Labor Statistics (BLS) released data showing that the consumer price index (CPI) reached 8.6% for the month of May. The CPI is the agency’s broad measure for prices of goods and services.
The number represents the highest level of inflation in the U.S. since 1981. In April, the CPI dipped to 8.3% following a previous peak of 8.5% in March, sparking hope that the Fed’s efforts to control inflation were working. Not so much.
In his thread on Tuesday, Ackman specifically called back to the high inflation of the ’70s and ’80s, name-dropping the Fed chair widely credited for bringing the U.S. back from the brink, Paul Volcker. “Volcker needed 20% FF for similar levels of inflation measured comparably,” he tweeted. “Assuming a 4% terminal rate gets it done is hopium. Hopefully, 5%-6% gets it done if the Fed gets there quickly.”
