Bill Ackman, CEO of Pershing Square (NYSE:SQ) Capital Management, warned on Monday of an impending economic slowdown due to the Federal Reserve's aggressive rate hikes. Ackman suggested that the current level of real interest rates has reached a point that could decelerate the economy. The central bank has increased rates 11 times since March 2022 in an attempt to curb inflation, which was running at its highest rate in four decades.
Despite a recent cooling of inflation, the latest reading on consumer prices still showed a 3.7% annual increase, surpassing the Fed's 2% target. "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," Ackman said in a CNBC interview.
Even as the Fed paused its rate hikes last month, signaling that future increases were not ruled out, Ackman expressed skepticism about further hikes. He also warned of rising bond yields as markets anticipate sustained high inflation. On Monday, the 30-year Treasury yield surged 9 basis points to 4.8%, and the 10-year yield rose as much as 13 basis points to touch 4.7%.
Ackman anticipates that the 30-year yield will continue to rally "into the mid-5s" but doesn't expect the 10-year yield to go "meaningfully above 5%" as signs of economic weakness emerge. He reiterated his stance from August when he revealed his bet against 30-year Treasurys due to stubborn inflation.
The rise in mortgage rates over the past year and a half has also impacted real estate markets. While many homeowners and large businesses borrowed at lower fixed rates for long terms, those who borrowed over shorter time frames face challenges. "People who have borrowed short-term at a low-fixed rate, who are getting repriced — you look at a lot of commercial real estate investors — are going have a very challenging period," Ackman said.
In other news, on Friday, Ackman announced that U.S. regulators have approved his unique SPAC structure, known as a SPARC (special purpose acquisition rights company). In this model, potential acquisitions are disclosed to investors before they pledge funds. Ackman expressed readiness to pursue a deal with a "large private growth company" under this newly greenlit structure.
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