Hedge fund billionaire Bill Ackman, the head of Pershing Square Capital Management, has recently revealed he expects the Federal Reserve to start cutting interest rates at a greater-than-expected rate this year, with the first cut coming sooner than the market is anticipating.
Ackman highlighted this during a CNBC “Squawk Box” interview, noting the significant cooling of inflation and the currently high real cost of Money, which make him believe central banks are “going to have to move early” and could “do more than three [interest rate] cuts.”
These three interest rate cuts would represent 75 basis points, off of 5.25% to 5.5%, Ackman noted, saying this is “not a significant move” as they would represent a 15% reduction in interest rates.
Per his words, these interest rate cuts would be good for equities “as long as they bring rates down fast enough to avoid a meaningful recession.”
In contrast to the Fed’s indication at their December meeting of potentially three quarter-percentage-point rate cuts this year, market expectations are leaning towards a more aggressive approach. Traders in the fed funds futures market are pricing in six cuts this year, with an 83% probability of the first one occurring in March, based on CME Group’s FedWatch tool.
This aggressive market outlook, however, isn’t universally accepted. Larry Fink, CEO of the world’s largest asset manager BlackRock, expressed a differing view, as he anticipates the Federal Reserve will have a cautious approach and doesn’t see three interest rate cuts occurring this year.
Notably, renowned American economist Paul Krugman has recently declared that in the United States “inflation has been defeated.” He referenced the U.S. Core Consumer Price Index (CPI), which measures the changes in the price of goods and services, excluding food and energy. The Core CPI over the last 12 months stood at 3.9%, but more importantly, over the last six months, it was at 3.2%. This indicates a slight decrease in the rate of inflation recently.
Krugman pointed out that the Core CPI without shelter costs (which have some historical problems) was only 1.6% in the last six months. This much lower number implies that the inflation rate is much less serious without the effect of shelter costs.
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