Pershing Square’s Bill Ackman sounded the alarm Monday about the economy, which he said has begun to slow following aggressive rate hikes.
“(T)he Fed is probably done. I think the economy is starting to slow down,” Ackman said on CNBC’s “Squawk Box.” “The level of real interest rates is high enough to slow things down.”
In a bid to combat stubbornly high inflation, the Federal Reserve raised interest rates to their highest level since early 2001, while signaling that borrowing costs will remain high for longer. The central bank predicted last month that it would raise rates once again this year. Many on Wall Street worry about a recession as the economy feels the lagged effects of massive tightening measures taken since March last year.
“High mortgage rates…high credit card rates are starting to have a real impact on the economy,” Ackman said. “The economy is still strong, but it’s definitely weakening. We’re seeing a lot of signs that the economy is weakening.”
The billionaire hedge fund manager said he believes long-term Treasury yields could rise even higher in the current environment. He sees the 30-year rate testing the 5% average and the 10-year benchmark rate approaching 5%. Ackman said he was still shorting 30-year Treasuries as a hedge.
The 10-year Treasury note returned 4.64% on Monday after touching a 15-year high last week, while the 30-year note returned about 4.76% on Monday.
“The 30-year Treasury rate will likely rise,” Ackman said. “I don’t know if the 10-year rate needs to rise significantly above 5% because we’re seeing some weakness in the economy. But over the long term, we think structural inflation is going consistently higher in a world like that.”
Ackman said investors who borrowed short-term at a low, fixed rate and are repriced, particularly in the commercial real estate market, are in for a “very difficult time.”
“I think that’s really the big threat,” he said.
U.S. regulators recently approved Ackman’s unique SPAC structure – called “SPARC”, a special purpose acquisition rights company – in which he will notify investors of a potential planned SPAC acquisition before it is announced. asks them to pledge funds.
Correction: The Federal Reserve raised interest rates to their highest level since early 2001. An earlier version misstated the timeline.