Squawk Box: Inflation Is Not Transitory

Summary

In this CNBC Squawk Box appearance, Bill Ackman argues that inflation is neither transitory nor under control and that the Federal Reserve is running policy far behind the reality of the economy. The interview is framed by his fund's interest-rate swaption position: a cheap, asymmetric hedge against the possibility that the Fed would have to move faster and further than its own forecasts implied. Ackman begins with a bottom-up check on the economy — full employment, rising wages, strong consumer balance sheets at the middle and top — and then pivots to the squeeze on lower-income households from food, gas, and rent. The real problem, he says, is inflation, and the Fed's first rate increases have not tightened financial conditions at all. Markets are up, the two-year Treasury is below 2.9%, and the market is effectively pricing almost no additional tightening. He recommends aggressive rate hikes into the high threes or four handle, with rates staying above four percent long enough to break inflation. The exchange then turns to fiscal policy, where Ackman criticizes the prior stimulus as the extra fuel that caused extreme inflation and urges caution on new spending bills.

Full Text

Machine-generated transcript (ASR); minor transcription errors may exist. Speaker turns and paragraphing restored editorially — words unchanged.

Interviewer:

what's your current take about the economy itself but also where the stock markets are in terms of fairly valued or not

Bill Ackman:

yeah i think the economy is actually quite strong right now you know the question is where it's going to be in six months and 12 months but you know we're at full employment there are plenty of jobs available now wages are going up um you know howard hughes uh company we own is opening a uh a kind of food hall the john george food hall uh at the south street seaport we've had to hire 600 people and they've been working really hard to do it you've only hired 350 people in the last you know a couple months so if you're looking for a job there's a good one there so i think the economy itself is very strong i had the opportunity to see jamie dimon this weekend i apologize i do i still am a little congested from from covin and jamie talked about number one this is the the lowest default rate period in history uh for the consumer uh part of the bank and that uh their their full spectrum of people that they you know uh support rich that bank with jp morgan and chase and so on uh are in the best position they've ever been so i think we've got you know well capitalized consumers for the most part although i do think lower income people are getting a lot of pressure from higher gas prices higher food prices higher rental rates um and i think the biggest problem for the economy is inflation and inflation is roaring it's continued to rage and uh unfortunately the the steps taken by the federal reserve have not uh been effective you know since uh you know june the first 75 basis point

increase financial conditions have used enormously you know stock markets up you know depending on market uh you know 10 11 and more um you know the look at you know the two-year treasury which is a kind of good indicator of uh kind of where fed funds should be over the next eight quarters is under 2.9 percent and uh you know with the fed today at you know called two and a half percent basically the market's saying that the the fed fed funds will average only 40 basis points above the current rate over the next uh two years and that implies really no financial tightening at all just at the last meeting jerome powell said you know that the fed was now comfortable that it reached a sort of neutral uh level of rates uh which again a fairly extraordinary statement in a a world with nine percent inflation so i think the problem is

Interviewer:

and so what what would you be advocating the fed do then

Bill Ackman:

i think the fed has to be aggressive in raising rates getting to a you know something probably with the you know high threes four handle checking in to seeing how things are going but i think rates are gonna have to stay four percent plus for the foreseeable future you know 12 18 months or so in order to to kill this inflation they may need to take rates higher and uh i think that's the biggest risk to the markets is that people are not pricing that in uh and i think the uh we need to the fed has to take its foot off the accelerator and when you can borrow money uh based off a uh you know two and a quarter to two and a half percent so for rate that's the you know kind of base rate for for borrowers and inflation is nine percent and it's going to be persistent certainly in the mid single digits for a long time you borrow as much money as you can and so the current prevailing level of rates is you know amping up the economy which is why we are having uh the inflation that we are having now coupled with the global factors

Interviewer:

of course bill do you like the chips act do you like the uh the other reconciliation bill that manson is backing does a lot of you know we think of the fed but a lot of times the fed is just enabling uh whatever administration whatever congress is doing you know they got to keep rates low they get they're sort of like partners in crime if you will for at least you know in my view for some of the the profligate spending that goes on do you like either one of those pieces of legislation

Bill Ackman:

no i think there's merit to what you say i think what got us into this mess was an extra couple trillion dollars of stimulus uh that was intended you know unfortunately when when a new regime comes into power they want to do something for the people that you know elected them right and here you know it's very very easy when you control the congress and it's a new administration to spend money and uh unfortunately 2 trillion that was spent led was the uh you know the extra fuel that caused the extreme inflation and the extreme inflation is actually affecting people uh who who are uh you know the by administration was trying to help i think through that stimulus package so it's got to be very cautious about adding more uh fiscal stimulus at a time like this you know the chips act again i haven't read these in detail um but i feel like the chips industry you know they've got some very well capitalized very well-run companies do they really need 50 billion i'm sorry whatever the number is you know 50 billion dollars more than that

Key Themes

• Asymmetric Hedging — the swaption position was cheap because the consensus still believed the Fed's transitory narrative
• Inversion and Thesis Stress-Testing — inverting the Fed forecast and asking what happens if the consensus is wrong
• Avoiding Extrinsic Risks — inflation, fiscal policy, and global supply shocks sit outside any single company's control
• Volatility vs. Permanent Loss of Capital — separating a policy-induced repricing from a fundamental impairment of portfolio businesses
• Twitter Thread on the Fed — the on-air argument was part of a broader public campaign in the same period

Context & Significance

This interview sits in Act IV, the renaissance, but it is not a stock pitch. By mid-2022 Ackman has rebuilt Pershing Square around simple, predictable businesses and permanent capital; the concentrated equity book is exactly the kind of portfolio that cannot survive a forced liquidation in a rate shock. The swaption position is therefore defensive infrastructure: a way to keep the long book intact while protecting against a macro regime change. The on-air tone is urgent rather than combative — not the activist short seller of 2007 or the brawler of 2013, but a manager who has seen how quickly inflation can rewrite the assumptions beneath equity valuations.

The honest retrospective is that Ackman was directionally right and tactically early. The Fed did deliver the fastest tightening cycle in four decades, and the swaptions paid off. But the interview also documents the risk of macro forecasting as a public posture: the chips-act exchange shows him criticizing legislation he admits he has not read in detail, and his warning that rates would need to stay "four percent plus" for twelve to eighteen months was a real-time guess, not a prophecy. What the segment captures is the mindset of a renaissance manager using cheap, convex protection to stay long the equity book he believes in.