Pershing Square’s Bill Ackman expressed concerns about the economy on Monday, suggesting that it has begun to slow down due to aggressive rate hikes.
Ackman stated on CNBC’s “Squawk Box” that “[T]he Fed is probably done. I think the economy is starting to slow. The level of real interest rates is high enough to slow things down.”
In an effort to combat persistently high inflation, the Federal Reserve has raised interest rates to the highest level since early 2001 and indicated that borrowing costs will remain elevated for a longer period. The central bank has forecasted one more rate hike this year. Many individuals on Wall Street have grown concerned about a potential recession as the economy experiences the lag effects of significant tightening measures implemented since March of the previous year.
Ackman added, “High mortgage rates, high credit card rates, they’re starting to have a significant impact on the economy. The economy is still strong, but it is showing signs of weakening. We are observing ample evidence of this weakening in the economy.”
The billionaire hedge fund manager believes that long-term Treasury yields could rise further in the current environment. He predicts that the 30-year rate will approach the mid-5% range, while the benchmark 10-year rate will approach 5%. As a hedge, Ackman continues to short 30-year Treasury bills.
The 10-year Treasury note currently yields 4.64% after reaching a 15-year high last week, while the 30-year Treasury bond yields about 4.76%.
“The 30-year Treasury rate is likely to increase,” Ackman asserted. “I’m unsure if the 10-year rate needs to surpass 5% significantly due to the weakness observed in the economy. However, in the long run, we believe that structural inflation will persistently rise in a world like this.”
Ackman also stated that investors who have borrowed at low fixed rates and are now facing repricing, particularly in the commercial real estate sector, will encounter a “very challenging period.”
“I believe that is the major threat,” he concluded.
Recently, U.S. regulators approved Ackman’s unique SPAC structure, known as “SPARC,” which stands for special purpose acquisition rights company. This structure allows Ackman to inform investors about a potential acquisition planned for the SPAC before they are asked to pledge funds.
Correction: The Federal Reserve has raised interest rates to the highest level since early 2001. An earlier version of this article misstated the time frame.
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