Bill Ackman urges Fed to restore consumers' confidence amid soaring inflation

Pershing Square Capital Management CEO Bill Ackman has called for the Federal Reserve to take additional action to tame rising inflation. Ackman's message came after a report revealed that consumers in the U.S. were more pessimistic about the economy than they were in 10 years.

The billionaire hedge fund manager noted that consumer confidence is still weak due to rising inflation. The Fed should take immediate action to remove the inflation threat and restore market confidence.

"Business is a confidence game. Consumer confidence is weak because of inflation, not because of the economy. Jobs are plentiful and the economy is strong," Ackman tweeted. "The @federalreserve needs to act decisively to kill inflation and inflationary expectations. Then confidence can be restored."

In May, Ackman warned that the country's economy could collapse if the central bank did not take action to control rising inflation. He urged the Fed to take immediate action to prevent inflation from happening.

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Rising CPI

The consumer price index rose 8.6% in May from a year earlier, which was the fastest increase since December 1981.

The Conference Board reported on Tuesday that its Consumer Confidence Index fell to 95.2 in June, which was the lowest level in over a year. Meanwhile, the consumer expectations index, which measures consumers' outlook, fell to 66.4, hitting a new low in March 2013.

Lynn Franco, the director of the Conference Board's economic indicators, said that the increase in food and gas prices contributed to the decline in consumer confidence. Franco noted that the expectations index has now dropped to 80, suggesting a weaker growth outlook in the second half of 2022.

"Consumers' grimmer outlook was driven by increasing concerns about inflation, in particular rising gas and food prices," Franco said. "Expectations have now fallen well below a reading of 80, suggesting weaker growth in the second half of 2022 as well as growing risk of recession by yearend."

Highest key benchmark federal funds

At its June meeting, the Fed voted to raise interest rates by 75 basis points for the first time in over a decade. The increase pushed the key federal funds rate to a range of 1.50% to 1.75%, the highest since the pandemic started two years ago.

In response to a question after the announcement to raise interest rates, Fed Chairman Jerome Powell said that the decision to raise interest rates by 75 basis points was an unusually large one. He also noted that it was most likely that the central bank would raise rates at its next meeting.

"Clearly, today's 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common," Powell said. "From the perspective of today, either a 50 basis point or a 75 basis point increase seems most likely at our next meeting."

In a tweet on June 14, Ackman noted that the 100 basis point increase required to maintain the current rate of growth would be better than the 75 basis point hike. He said that the Fed should gradually reduce its monetary policy rate and allow markets to recover.

"And yes, 100 bps tomorrow, in July and thereafter would be better," Ackman tweeted. "The sooner the @federalreserve can get to a terminal FF rate and thereafter can begin to ease, the sooner the markets can recover."