Billionaire investor Bill Ackman said the Federal Reserve was playing "catch up" with inflation, and interest rates could surpass 5% by next year.
"Inflation is out of control and inflationary expectations have become unanchored," Ackman tweeted Thursday afternoon.
"The Fed has finally come to this realization and has decided to act, and is playing catch up."
The Fed last week intensified its drive to tame high inflation by raising its key interest rate by three-quarters of a point — its largest hike in nearly three decades — and signaling more large rate increases to come that would raise the risk of another recession.
The Fed's move will increase its benchmark short-term rate, which affects many consumer and business loans, to a range of 1.5% to 1.75%.
"The recession word is on everyone's lips but recession talk won't bring down inflation," Ackman tweeted. "Consumers and corporations are well capitalized and underlevered. Banks are massively underinvested with one of the lowest ratio of deposits to loans in history.
"The potential for a future recession won't stop the Fed from raising rates now."
Ackman blamed Jerome Powell's "communication style" for the bond market misreading the Fed chairman, leading to a massive decline in short term rates.
"Powell does not come across as someone who wants to go to battle against inflation. He seems uncomfortable and reluctant, almost apologetic, about raising rates," the Pershing Square Capital Management CEO tweeted.
"The Fed clearly has a credibility problem as the bond market flat out ignores Powell's and the governors' commentary."
However, Ackman said "the Fed is serious" about raising interest rates to curb inflation. He added that he expects the Fed to hike rates by 75 basis points or more in July, and by 50 basis points or more in subsequent meetings, until inflation is clearly decelerating toward the target rate of 2%, and that an interest rate of "5% or more next year is in the cards."
"Powell and the [Fed] governors care about the American people, our economy and their legacy. Powell does not want to be known as a worse chair than Arthur Burns," Ackman tweeted.
In late May, Ackman warned that stocks would continue to fall until the Fed signaled a commitment to tackling inflation.
"It ends when the Fed puts a line in the sand on inflation and says it will do 'whatever it takes,'" Ackman tweeted May 24. "And then demonstrates it is serious by immediately raising rates to neutral and committing to continue to raise rates until the inflation genie is back in the bottle."
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