With the steady rise of US inflation and increasingly evident signs of economic weakness, market expectations for a rate cut by the Federal Reserve are becoming stronger.
On Tuesday, Bill Ackman, a well-known investor on Wall Street and founder of Pershing Square Capital Management, bet that the Fed may start cutting rates earlier than widely expected, possibly as early as the first quarter of next year.
Rate cut by the Fed in the first quarter of next year?
According to CME’s FedWatch Tool, Wall Street traders have already fully priced in expectations for a rate cut in June by the Federal Reserve, with even over 70% probability assigned to a rate cut in May.
Ackman believes that the Fed’s rate cuts may come earlier than anticipated by the market, possibly even before Q1 next year.
The Federal Reserve began aggressively raising interest rates from March 2022 at its fastest pace in 40 years. Despite general slowing inflation this year, the Fed has yet to begin cutting rates.
In an interview, Ackman stated: “Real interest rates are factors affecting the economy. As inflation declines, real interest rates continue to rise.”
He believes that if inflation trends remain below 3%, then despite this scenario, he expects that the Fed will maintain interest rates around 5.5%, which he considers “a very high real interest rate.”
Is a soft landing impossible for the US economy?
At age 57 and founding Pershing Square Capital Management in 2004 with approximately $17 billion assets under management. Over many years, Ackman has made multiple macro bets and achieved great success through precise operations on US stocks and bonds during times affected by pandemics.
Last month on Twitter, Ackman announced that his company had closed out its long-standing short position on US Treasuries—a move that shook up markets. When explaining the reason for closing out the short position, Ackman pointed out that he believed the US economy was slowing down at a faster pace than recent data indicated.
Ackman stated that he does not believe in a so-called soft landing for the US economy. He believes that under continued pressure from Fed rate hikes, an economic recession in the United States is inevitable. He also noted that he has seen signs of economic weakness.
Ackman said: “I do think we’re seeing some weakening in the economy. We’ve seen evidence of it in some companies… I think there’s risk of a hard landing if the Fed doesn’t cut rates soon.”