As inflation in the United States continues to stabilize and signs of economic weakness become increasingly apparent, the market's expectations for the Federal Reserve's interest rate cut are also becoming stronger.
On Tuesday Eastern Time, Bill Ackman, a well-known Wall Street investor and founder of Pershing Plaza Capital Management, bet that the Federal Reserve may start cutting interest rates earlier than market expectations, and may even cut rates in the first quarter of next year.
Is it possible for the Federal Reserve to cut interest rates in the first quarter of next year?
According to the CME Federal Reserve observation tool, Wall Street traders have fully digested the Fed's expectation of a rate cut in June, and even expect the possibility of a rate cut by the Fed in May to exceed 70%.
Market expectations for the Federal Reserve's May interest rate next year (source: CME Federal Reserve Observation Tool)
Ackerman believes that the Federal Reserve's interest rate cut may be earlier than market expectations, even earlier than the first quarter of next year.
The Federal Reserve has been aggressively raising interest rates since March 2022, achieving the fastest rate hike in 40 years. Although inflation in the United States has generally slowed down this year, the Federal Reserve has not yet begun to lower interest rates.
Ackerman said in an interview, "Real interest rates are a factor that affects the economy. As inflation rates decrease, real interest rates continue to rise."
He believes that if the Federal Reserve maintains interest rates around 5.5% even with inflation trends below 3%, "this would be a very high real interest rate."
Is it impossible for the US economy to have a soft landing?
Ackermann, currently 57 years old, founded Pershing Plaza Capital Management in 2004, which manages approximately $17 billion in assets. Over the years, Ackerman has made multiple bets in the macro field and has been crowned with the title of God for his precise operations on US stocks and bonds during the pandemic.
Last month, Ackerman tweeted that the company had already liquidated its long-term short positions in US Treasury bonds, which shook the market. Ackermann explained the reason why he balanced his short positions in US Treasury bonds, pointing out that he believes the pace of the US economic slowdown is faster than recent data shows.
Ackerman stated that he does not believe that the US economy is heading towards a so-called soft landing. He believes that under the continuous pressure of the Federal Reserve to raise interest rates, the United States is bound to experience an economic recession. He also pointed out that he has seen signs of economic weakness.
Ackerman said, "I do think the economy is weakening. We have seen evidence of this in some companies... I believe there is a risk of a hard landing if the Federal Reserve does not start cutting interest rates soon."