The Pershing Square fund manager says Fed officials need to explain their rationale behind what is the neutral rate.
The market has been in full-on party mode in the 48 hours since Fed Chair Jerome Powell said the central bank was shifting to a data-dependent stance for deciding interest rates. That’s best seen in the Nasdaq Composite COMP, +1.08%, which rallied 4.1% on Wednesday and then another 1.1% on Thursday.
And not just the bond market. “Inflation might be trending down,” tweeted Elon Musk, the chief executive of Tesla TSLA, +2.21%. “More Tesla commodity prices are trending down than up fwiw.” Of course, not necessarily for his products. Asked if prices on a Tesla would go up, he replied: “too early to say for sure.”
“A neutral rate of 2.25-2.5% only makes sense in a world with 2% stable inflation. It makes no sense in a world with 9%, 6% or even 4% inflation. Powell’s views on the neutral rate have only served to materially ease financial conditions making the inflation problem worse and his job more difficult,” said Ackman. In past inflation episodes, the Fed has had to lift rates above the prevailing levels of inflation to kill it, he said.
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