Investor Bill Ackman says the Federal Reserve needs a 'shock and awe' rate hike in order to restore its credibility with markets.
Bill Ackmansaid the Federal Reserveshould deliver a bigger rate hiketo restore its credibility with markets.
- Ackman said the Fed is losing the battle against
inflation, which is at its highest in 40 years.
In a series of tweets on January 15, Ackman said, "The @federalreserve could work to restore its credibility with an initial 50 bps surprise move to shock and awe the market, which would demonstrate its resolve on inflation."
Ackman said the Fed was losing the battle against inflation, which has risen to its highest in almost 40 years, as the economy has reopened and created shortages of raw materials and even available workers.
Ackman said the central bank was behind the curve and added that there would be "painful economic consequences for the most vulnerable," He questioned whether three or four interest-rate rises this year would be enough.
Financial markets reflect an expectation that the Federal Reserve will raise interest rates four times this year, according to CME Group's FedWatch tool, starting with a 25 basis-point increase in March.
Inflation is at a 40-year high, with the consumer price index (CPI) up 7% in December 2021 from the previous year. This was the largest 12-month rise since 1982.
The Fed has not raised interest rates by more than 25 bps at a time since 2000.
The Fed slashed its main interest rates, the federal funds rate, to a record low target range of between 0% and 0.25% in the spring of 2020 during the onset of the Covid pandemic.
Ackman said the Fed's larger-than-expected 50 bps hike could prevent the need for more aggressive action in the future.
"A 50 bp initial move would have the reflexive effect of reducing inflation expectations, which would moderate the need for more aggressive and economically painful steps in the future," he tweeted.
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