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

Benzinga ·  Nov 28, 2023 22:28

Bill Ackman, the billionaire founder of Pershing Square Capital Management, anticipates the Federal Reserve to initiate interest rate cuts sooner than market predictions.

What Happened: Ackman predicts the rate cuts could take place as early as the coming quarter, Bloomberg reported. Currently, market data from swaps suggests an 80% likelihood of a rate cut by May, with traders fully expecting a cut by June.

Despite the steepest rate hike in 40 years that started in March 2022, the central bank has yet to implement any rate cuts, even amid a general slowdown in U.S. inflation this year.

Ackman expressed his apprehensions about the real rate of interest rising while inflation is on the decline during an upcoming episode of The David Rubenstein Show: Peer-to-Peer Conversations.

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He cautioned that if rates are maintained around the 5.5% range 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.

Why It Matters: Expectations regarding interest rates have taken a 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 were predicting a 65% chance that the Fed would decrease rates by May 2024. There are fears that both economic growth and corporate profits will slow down if the Fed persists with its "higher for longer" position.

Earlier, in October, Bank of America analysts 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 fact that the three most significant monthly economic indicators — the jobs report, the Consumer Price Index (CPI), and retail sales — all outperformed expectations.

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