Bill Ackman, who is a famous investor from the USA and also a billionaire, has issued a warning about the Fed's ambition to control inflation. He believes that it will be difficult for the Fed to control inflation. As a result, both the interest rates and inflation will remain high for several years to come. If we look at Bill Ackman's analysis, it paints a very dark picture of the US equities.
He also said that it would not be possible for the Federal Reserve to get the inflation back under its control. If we look at the Fed's goal, it plans to get inflation under 2%, but according to Bill Ackman, it would not be possible. And a direct result of that will be higher interest rates for years to come.
In June, the inflation figure in the USA was at 9.1% (a 40-year high), which cooled down to around 7.7% in the month of October.
To solve the issue of high inflation, the interest rate was raised from near zero to around 4%. And it seems that Fed will not be just stopping at 4% as there are several signals that it will eventually touch 5%.
According to Ackman, the markets are taking the inflation threat very lightly and are too optimistic. He also said that the markets are expecting the interest rates to go down, which is also highly unlikely to happen.
He also commented on how the future cash flow of US companies will be eroded due to the higher rates. As a result, it will have a direct effect on the stock valuations of US companies.
As for a reason behind his inflation forecast, the billionaire pointed out how the US companies will move more of their factories and production onshore. And if this happens, it means that they will have to pass the cost of rent, labor, and raw material to the consumer in the form of higher prices. As a result, it will fuel inflation which will, in turn, raise the interest rates.