Bill Ackman doubles down on call for aggressive Fed rate hikes

Bill Ackman, chief executive officer of Pershing Square Capital Management LP, speaks during a Bloomberg Television interview in New York, U.S., on Wednesday, Nov. 1, 2017. Ackman discussed his proxy fight at Automatic Data Processing.

Pershing Square founder Bill Ackman has doubled down on calls for aggressive interest rate increases from the US Federal Reserve, saying it would lower the risk of high long-term rates.

The series of tweets came hours after he warned that investors lacked confidence the Fed will get inflation under control and called for it to act aggressively.

“By raising rates aggressively now, the Fed can protect and enhance equity markets and the strength of the economy for all, while stymieing inflation that destroys livelihoods, particularly that of the least fortunate,” he tweeted.

Some believe that higher short term rates are bad for stocks. I disagree. The value of a long-term financial asset is the present value of the future cash flows it will generate over its life. The more back-ended the cash flows from the asset, the more sensitive the asset is

— Bill Ackman (@BillAckman) May 24, 2022

to long-term interest rates which are used to discount these cash flows. When the fed raises short-term rates, it reduces the value of short-term assets like shorter-term fixed income securities. But if the effect of the increase in fed funds is to subdue inflation and therefore

— Bill Ackman (@BillAckman) May 24, 2022

long-term rates, it should increase the value of long-term assets like equities. The reason why equities often fall at the beginning of increases in fed funds is that the @federalreserve normally acts preemptively to address inflation. Until inflation is satisfactorily addressed

— Bill Ackman (@BillAckman) May 24, 2022

investors don’t know if and how long it will take the Fed to quell inflation. Uncertainty is the enemy of markets particularly in the short term. That is why I believe that the sooner and more aggressively the Fed raises rates to subdue inflation, the lower the risk of

— Bill Ackman (@BillAckman) May 24, 2022

persistently high long-term rates, and the greater the probability they stay low. Equity markets have had the benefit of low long-term rates for as far as many can remember. If this paradigm were to change because of policy mistakes by the Fed, equities and other long-term

— Bill Ackman (@BillAckman) May 24, 2022

assets would be impaired. The value of equities affects the cost of capital for businesses and plays a critical role in business confidence. By raising rates aggressively now, the Fed can protect and enhance equity markets and the strength of the economy for all,

— Bill Ackman (@BillAckman) May 24, 2022

while stymieing inflation that destroys livelihoods, particularly that of the least fortunate.

— Bill Ackman (@BillAckman) May 24, 2022