Bill Ackman. Richard Drew/`
- Bill Ackman said on a Bloomberg podcast that he expects the Federal Reserve to cut interest rates soon.
- He said the U.S. economy risks a sharp downturn if the Fed doesn’t cut interest rates soon.
- The Fed has raised interest rates eleven times since March 2022 to curb rising inflation
Bill Ackman expects the US Federal Reserve to cut interest rates as early as the first quarter of next year.
The Fed must cut interest rates soon to prevent a sharp downturn in the U.S. economy, the billionaire investor said on Bloomberg’s “The David Rubenstein Show: Peer-to-Peer Conversations.”
“I think there’s a risk of a hard landing if the Fed doesn’t start cutting rates soon,” said Ackman, founder of the hedge fund Pershing Square, which has $16 billion in assets under management.
The Fed has raised interest rates 11 times since March 2022 to curb rising inflation. Inflation rose by 3.2% in October compared to October 2022. That’s still above the Fed’s inflation target of 2%.
The Fed’s target interest rate is currently in the range of 5.25% to 5.5%, which is “very high” when inflation is below 3%, Ackman told Rubenstein, co-founder and co-chairman of the private equity giant Carlyle Group.
“What happens is that the real interest rate that impacts the economy continues to rise as inflation falls,” Ackman added.
Higher interest rates curb spending and control price increases. They also curb business investment and in turn slow the economy. While this is desirable in an economy that is running too hot, there are concerns about a slowdown too much given macroeconomic uncertainties, including the fallout from the Israel-Hamas war and China’s faltering economy.
Analysis from Deutsche Bank last week showed that for the first time since January 2021, there are more central banks cutting interest rates than raising them.
While major central banks like the Fed and the European Central Bank are currently keeping interest rates stable, there are bets that they too will start raising rates in the coming months.
Swiss bank UBS, for example, said earlier this month that it expects the Fed to cut interest rates as the U.S. economy enters recession around the second or third quarter of next year.
A global trend toward interest rate cuts would bring relief to borrowers by reducing the cost of borrowing on everything from mortgages to credit cards.
“There was a huge subsidy of low interest rates, and most companies price their interest rates or debt at very low interest rates, and real estate investors certainly did the same thing,” Ackman said, pointing to much lower interest rates before the Fed’s current rate hike cycle. “It works until it doesn’t work anymore.”
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