Bill Ackman.Michael Bezjian/Getty Images for Brand Innovators
- Bill Ackman said the Fed is probably done raising interest rates as the economy begins to weaken.
- “High mortgage rates, high car rates, high credit card rates – they’re starting to have an impact on the economy,” he told CNBC.
- The billionaire investor is also betting that yields on 30-year government bonds will continue to rise.
Bill Ackman, CEO of Pershing Square Capital Management, said the Federal Reserve has probably finished raising interest rates as the economy signals a slowdown, but warned that spillover effects will continue.
The central bank has raised interest rates 11 times since March 2022 to curb inflation, which had risen at the fastest pace in four decades. Inflation has cooled sharply since then, but the latest measure of consumer prices showed an annual rise of 3.7%, still above the Fed’s 2% target.
The Fed held rates steady at its meeting last month while signaling that future rate hikes are not off the table. Ackman, however, does not expect more.
“I think the Fed is probably done. I think the economy is starting to slow. I think the level of real interest rates is high enough to slow things down,” Ackman said in a CNBC interview on Monday. “High mortgage rates, high car rates, high credit card rates – they’re starting to have an impact on the economy. The economy is still solid, but it’s definitely weakening.
But even if the Fed pauses, bond yields could continue to rise as the market prices in the prospect of high inflation, he added.
On Monday, the yield on 30-year government bonds rose 9 basis points to 4.8%, and the 10-year yield rose as much as 13 basis points to 4.7%.
Ackman told CNBC he sees the 30-year yield continuing to rise “into the mid-5s” but does not expect the 10-year yield to rise “much above 5%” as the economy has shown signs of weakness.
“In the long run, we think structural inflation will be persistently higher. In such a world, the government should not be able to borrow at a fixed rate of four-and-three-quarters for 30 years,” he said, echoing his call in August when he bet against 30-year government bonds, citing stubborn inflation.
Meanwhile, mortgage rates have skyrocketed over the past year and a half, along with US bond yields, weighing on housing markets.
Ackman pointed out that most homeowners and many large businesses have taken out long-term loans at lower fixed rates. The problem, however, affects those who have borrowed over shorter periods.
“Those who took out short-term debt at a low fixed rate and are being re-priced – think of many investors in commercial property – are going to have a very difficult time,” Ackman said. “I think that’s really the big danger”.