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a market collapse will stop inflation Bill ackman's Theory hey guys today we're going to talk about how a market collapse will stop inflation by Bill ackman's Theory let's get right into it Bill Ackman the billionaire hedge fund manager believes that raging inflation will only subside if the Federal Reserve acts more aggressively or the market sell off turns into a full-fledged collapse achman said in a slew of tweets there is no Prospect for a material reduction in inflation unless the FED aggressively raises rates or the stock market crashes catalyzing an economic collapse and demand destruction the perishing Square hedge fund manager attributed the 2022 Market correction to investors lack of confidence in the central bank's ability to contain inflation at a 40-year high he believes the market turmoil will end only when the FED draws a line in the sand on Rising prices Ackman added If the Fed doesn't do its job the market will do the fed's job and that is what is happening now he then said the only way to stop today's raging inflation is with aggressive monetary tightening or with a UPS in the economy the market has plummeted this year as the federal reserve's tightening measures to combat inflation have fueled fears of a recession the Central Bank raised its key interest rate by half a percentage Point earlier this month its most aggressive move to date in 2022 the S P 500 is down about 18 and the equity Benchmark briefly entered bear Market territory last week however Ackman believes that at this point investors will cheer the FED raising rate more quickly because inflation is out of control Ackman said markets will soar once investors can be confident that the days of runaway inflation are over let's hope the FED gets it right according to the hedge fund manager the FED should show its seriousness by raising rates to neutral and committing to continue raising borrowing costs until the inflation Genie is back in the bottle similar 50 basis point rate increases are expected at the fed's next few meetings the current Target rate is 0.75 percent to one percent during the height of the covet pandemic in March 2020 Ackman warned on CNBC that hell is coming and pleaded with the White House to shut down the country for a month he made two billion dollars at the time by betting against the market however Ackman who supported aggressive fed action earlier this year and called for a full percentage Point hike in July believes geopolitical factors will keep inflation persistently High even as policymakers carry out their most combative round of rate hikes in decades he said supply chain risks that people have become extremely experienced with in the last year or so have made nearly every U.S CEO rethink outsourced or distant Supply chains he then added a lot more of that is going to come closer to home and it is more expensive to do business here Rising Global wages the transition to Alternative Energy deglobalization and a shift to domestic sourcing and production according to akman will all weigh on the fed's ability to control inflation fed officials raised their key Benchmark interest rate six times this year including four consecutive 75 basis point increases between June and November the FED funds rate has risen to a new range of 3.75 to 4 its highest level since 2008 with further increases expected despite the federal reserve's efforts to keep prices under control inflation eased slightly in October from the previous month to 7.7 on an annual basis ackman's comments reflect the growing consensus among Wall Street strategists the fed's efforts to cool demand will not address long-term macroeconomic shifts such as rising real rates labor shortages and permanent changes to the global supply chain earlier this year blackrock's investment Institute argued that inflationary pressures were triggered by a broader shift in spending from services to Goods as well as production constraints caused by the pandemic Ukraine's war and China's covert lockdowns a team led by Gene boiven head of BlackRock investment Institute said in September central banks can't fix these constraints in our view hence a brutal trade-off trigger a deep recession by hiking rates or live with more persistent inflation the team then added the fed's forecasts don't acknowledge this trade-off Bill Ackman also expects inflation and interest rates to remain elevated for years darkening the outlook for stocks he said on a third quarter call with investors in his perishing Square hedge fund we think inflation is going to be structurally higher going forward than it has been historically he then added we do not believe that it's likely the Federal Reserve is going to be able to get inflation back to a kind of consistent two percent level in June inflation reached a 40-year high of 9.1 percent but remained at 7.7 percent in October the FED has responded by raising interest rates from near zero in March to a range of 3.75 to 4 today with the possibility of exceeding 5 for the first time since 2007 however Ackman believes that markets are overly optimistic about the inflation threat dissipating and rates falling he pointed out that higher interest rates reduce the value of companies future cash flows which could weigh on stock valuations the billionaire investor based his inflation forecast on his prediction that America companies will unsure more of their production after suffering supply chain disruptions during the pandemic if this occurs they will almost certainly pass on higher labor rent and raw material cost to customers in the form of higher prices thereby fueling inflation
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