Bill Ackman Bets On Potential Fed Interest Rate Reduction in First Quarter

Bill Ackman, the billionaire founder of Pershing Square Capital Management, believes that the Federal Reserve will start cutting interest rates earlier than what the market predicts. According to Bloomberg, Ackman anticipates that rate cuts could take place as early as the next quarter.

Currently, market data from swaps suggests an 80% chance of a rate cut by May, with traders fully expecting a cut by June. Despite the steepest rate hike in 40 years that began in March 2022, the central bank has not implemented any rate cuts, even as U.S. inflation has slowed down this year.

Ackman expressed concerns about the real interest rate rising while inflation is declining during an upcoming episode of The David Rubenstein Show: Peer-to-Peer Conversations. He cautioned that if rates remain around 5.5% while inflation drops below 3%, it could result in a significantly high real rate of interest.

“I think there’s a real risk of a hard landing if the Fed doesn’t start cutting rates pretty soon,” said Ackman.

The expectations regarding interest rates have taken a more dovish turn since the Federal Reserve’s policy-setting meeting earlier this month. After recent inflation data indicated a continuing slowdown in consumer and producer price inflation, U.S. interest rate markets predicted a 65% chance of rate cuts by May 2024. There are concerns that both economic growth and corporate profits could slow down if the Fed continues with its “higher for longer” position.

Earlier in October, analysts from Bank of America projected that the Federal Reserve would continue increasing interest rates in December 2023, following a “watch and see” period. This assumption was supported by the strong performance of the three most significant monthly economic indicators: the jobs report, the Consumer Price Index (CPI), and retail sales.

It remains to be seen whether the Federal Reserve will act according to Ackman’s predictions and initiate rate cuts earlier than expected. The decision will have significant implications for the economy, interest rates, and financial markets. Investors will closely monitor the central bank’s actions and statements for any indications of a change in monetary policy.