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Ackman’s Take: No More Fed Hikes, But Keep an Eye on Rising Bond Yields

A calm after the storm? That’s what Bill Ackman, the brain behind Pershing Square Capital Management, seems to suggest about the Federal Reserve’s recent moves. After 11 rate hikes since March 2022 to curb the sizzling inflation – the hottest we’ve seen in 40 years – the financial maestro believes the Fed’s rate-raising spree might be over. But don’t break out the champagne just yet; there’s a twist in the tale.

Decoding the Fed’s Moves

Here’s a quick backdrop for the uninitiated. With inflation skyrocketing, the central bank went into firefighting mode, lifting rates multiple times to cool things down. And to some extent, it worked. Inflation has dialed back, but consumer prices still show a 3.7% annual rise, hovering above the Fed’s ideal 2% mark.

In its last meeting, the Fed chose not to rock the boat, leaving rates unchanged. However, they also hinted that future hikes might be in the playbook. But Ackman has a different prediction. “The economy is beginning to tap the brakes,” he observed during a CNBC interview. The impact of climbing mortgage, car, and credit card rates is being felt, causing a softening in the economic vigor.

The Bond Yields Conundrum

While the Fed seems to be taking a breather, bond yields are busy making headlines. On a recent Monday, the 30-year Treasury yield made quite a leap, hitting 4.8%, while its 10-year counterpart reached 4.7%.

Ackman’s forecast? The 30-year yield might march into the “mid-5s”, but he’s skeptical about the 10-year yield soaring “significantly above 5%”. Why? Simply put, the economy isn’t as robust as it once was. Drawing attention to his previous stand, he reiterated his perspective on “stubborn inflation” and how it’s unrealistic for the government to borrow at such fixed rates for long durations in the current scenario.

A Cautionary Note on Real Estate

Bond yields aren’t the only ones seeing an uptick. Mortgage rates have skyrocketed over the past 18 months, casting a shadow over real estate dynamics. While many homeowners and substantial businesses had the foresight to lock in lower rates for the long haul, those who played the short game might be in for some turbulence.

Ackman underscores the imminent challenge for commercial real estate investors, especially those who got on the bandwagon with short-term, low-fixed rates. “This,” he stresses, “is the big threat.”

Offering further insights on The Julia La Roche Show, Ackman threw light on the growing concerns in the commercial real estate sector. With defaults on office assets and mounting pressure on regional banks, it’s evident that the ripple effects of rate hikes and bond yields are starting to reshape the landscape.

Wrapping Up

In the high-stakes game of economics and finance, interpreting signals and anticipating trends can mean the difference between striking gold or hitting rock bottom. While the Fed might be holding its cards close to its chest for now, it’s crucial for investors and entrepreneurs to keep a vigilant eye on the horizon and navigate these choppy waters with prudence.