Bill Ackman, the CEO of Pershing Square, expressed concerns about the economy, suggesting that it is showing signs of a slowdown due to aggressive interest rate hikes.
Ackman shared his insights on CNBC’s “Squawk Box,” stating, “[T]he Fed is probably done. I think the economy is starting to slow down. The level of real interest rates is high enough to pump the brakes.”
In an effort to combat persistently high inflation, the Federal Reserve has raised interest rates to their highest level since early 2001, while indicating that borrowing costs will remain elevated for an extended period. The central bank projected an additional rate hike later this year. Many on Wall Street have grown apprehensive about a recession as the economy experiences the lingering effects of extensive tightening measures implemented since the spring of last year.
“High mortgage rates… high credit card rates, they’re starting to really impact the economy,” Ackman remarked. “The economy is still robust, but it’s definitely weakening. We’re seeing lots of evidence of weakening in the economy.”
The billionaire hedge fund manager believes that long-term Treasury yields could increase significantly in the current environment. He anticipates the 30-year rate reaching mid-5% and the benchmark 10-year approaching 5%. Ackman mentioned that he is still shorting 30-year Treasury bonds as a hedge.
The 10-year Treasury note yielded 4.64% on Monday after reaching a 15-year high last week, while the 30-year Treasury yielded approximately 4.76% on Monday.
“The 30-year Treasury is likely to go higher,” Ackman stated. “I don’t know that the 10-year has to go significantly above 5% because you’re seeing some weakness in the economy. But on a long-term basis, we think core inflation is going steadily higher in a world like that.”
Ackman also highlighted that investors who have borrowed short-term at a low fixed rate and are facing repricing, especially in the commercial real estate market, will encounter significant challenges.
“I think that’s actually the big risk,” he concluded.
U.S. regulators recently approved Ackman’s unique SPAC structure, known as “SPARC” (Special Purpose Acquisition Rights Company), in which he will inform investors of a potential acquisition planned for the SPAC before they are asked to commit funds.
