Twitter Thread: The Fed Is Behind the Curve

Summary

By the summer of 2022, Bill Ackman had moved much of his macro argument about inflation from investor letters and television slots onto Twitter, where he published two long threads dissecting the Federal Reserve's posture. The first, in late June, responds to a bond market that had just rallied on the assumption that the Fed would soon pivot away from tightening. Ackman argues the opposite: the Fed has only recently admitted inflation is out of control, its governors are now speaking with one voice about large hikes, and the bond market is misreading both Powell's tone and the institution's resolve. The second thread, in mid-July, arrives after a hot CPI print and a fresh leg down in rate expectations. There Ackman frames the market's recession-pivot assumption as a misreading of history, invoking the Burns and Volcker episodes to argue that the Fed may have to keep rates high even if growth slows.

The core thesis across both threads is that inflationary expectations have become unanchored and the Fed is playing catch-up from behind. Ackman does not blame the Fed merely for being late; he describes a communications problem in which Powell's unscripted remarks keep being interpreted dovishly, forcing governors to clarify afterward. He catalogues the hawkish revisions from Kashkari, Waller, Bowman, and Bostic — 75 basis points in July, 50 or more thereafter, "whatever it takes" — and asks why the bond market has ignored them. The answer he proposes is a credibility gap: the Fed has spent so long promising transitory inflation that its new hawkishness is not yet believed.

The market implication is deliberately concrete. Ackman predicts a federal funds rate of 5% or more and warns that recession talk will not stop the tightening because consumers, corporations, and banks are still well capitalized. In the July thread he goes further, questioning whether a peak rate near 3.7% can subdue 9.1% CPI and pointing to a presentation prepared for the New York Fed that walks through the Burns-Volcker record. The threads are not just commentary; they are the public rationale for the interest-rate swaption position Pershing Square had put in place, an asymmetric hedge designed to pay off if the consensus was wrong about the path of rates.

With the benefit of hindsight, the threads look directionally right: the Fed did deliver a rapid sequence of hikes and rates did climb above 5% the following year. But the honest retrospective is that Ackman was also early and loud in a way that carried tactical risk. Some of his specific forecasts — the timing of the 75 basis-point moves, the precise peak — were better read as scenario planning than as point predictions. The threads capture a manager who has rebuilt around high-quality operating businesses and is now willing to make public macro calls to defend that book, a very different posture from the forensic short seller of the previous decade.

Full Text

Complete thread as archived. Words unchanged.

=== THREAD 1 of 2 — 2022-06-23 ===

[status/1540067361293754373] I think the bond market is misreading the @federalreserve. This is likely due to Powell’s communication style and some wishful thinking on the part of investors. Inflation is out of control and inflationary expectations have become unanchored.

[status/1540067821966827521] The Fed has finally come to this realization and has decided to act, and is playing catch up. However, Powell does not come across as someone who wants to go to battle against inflation. He seems uncomfortable and reluctant, almost apologetic, about raising rates.

[status/1540068031585476608] Each time he speaks unscripted in Q&A, the market interprets his statements dovishly. To fix his message, the Fed governors thereafter go out to clarify. To wit, Kashkari, a historic dove, on 6/17 unveiled his dot plot which shows FF at 3.9% by YE and 4.4% by YE’23. He says

[status/1540068036627111936] 75 bps in July and 50 bps thereafter ‘until inflation is well on its way to 2%.’ Then on 6/18 Waller said he supports 75 bps in July and said the Fed is ‘all in’ on fighting inflation. And then today Bowman, who speaks rarely but carries great import in light of the

[status/1540068038220947459] rarity of her public statements, said ‘I expect that an additional rate increase of 75 basis points will be appropriate at our next meeting as well as increases of at least 50 basis points in the next few subsequent meetings…’ And Bostick last week said the Fed would do

[status/1540068039386873856] ‘whatever it takes’ to bring inflation back to 2%. Despite the above coordinated commentary, the bond market has ignored these statements leading to a massive decline in short term rates since the Fed meeting. A prediction: the Fed is serious. Powell and the governors care about

[status/1540068041366458368] the American people, our economy and their legacy. Powell does not want to be known as a worse chair than Arthur Burns. The Fed will raise rates 75 bps or more in July and 50 bps or more in subsequent meetings and won’t pause until it is clear and convincing that inflation is

[status/1540068043040194562] headed back to 2%. FF of 5% or more next year is in the cards. Inflation is continuing its march unabated. Nearly every CEO in America is raising prices because they can and they must to offset rising expenses. The recession word is on everyone’s lips but recession talk won’t

[status/1540068043891658754] bring down inflation. Consumers and corporations are well capitalized and underlevered. Banks are massively underinvested with one of the lowest ratio of deposits to loans in history. The potential for a future recession won’t stop the Fed from raising rates now. The Fed clearly

[status/1540068044864618498] has a credibility problem as the bond market flat out ignores Powell’s and the governors’ commentary. This must be concerning to the Fed as managing inflationary expectations is critical to controlling inflation. Expect even more hawkish commentary until the bond market wakes up.

=== THREAD 2 of 2 — 2022-07-14 (response to the 2022-07-13 CPI print) ===

[status/1547410056429330432] In response to today’s CPI print which showed broad-based and accelerating inflation, short-term FF futures moved upward implying peak FF of 3.68% by 12/22 with the @federalreserve immediately thereafter cutting rates to reach 2.9% by 1/24. Implicitly the market expects a more

[status/1547410075039551488] aggressive Fed will push us into recession by year end and then cut rates in response. Fed dot plots from a few weeks ago suggest that FF will rise to slightly higher levels, remain flat in 2023 with a gradual reduction beginning in ‘24. After today’s move, the disparity between

[status/1547410076482297859] the forward FF curve and the Fed has widened further. The market appears to assume that the Fed will act as it did in the last three recessions by immediately easing when the economy goes into recession. While this seems intuitive, the lessons of the stagflationary periods of the

[status/1547410078185279491] ‘70s and ‘80s suggest a different policy response. Today’s economic backdrop with high nominal demand, limited supply and high inflation is much more comparable to the 70s/80s experience than that of the last three recessions that are top of mind for investors. Arthur Burns

[status/1547410079187599360] legacy is tarnished by his decision to lower rates as real GDP slowed during a period of high inflation. This catalyzed years of massive inflation which was not quelled until Volcker took FF to 20%. Burns’ policy error is well understood by Powell and the Fed governors and likely

[status/1547410084019437589] explains their dot plot curves. Volcker maintained FF substantially above CPI for years to moderate inflation. Query therefore whether 3.7% FF is enough to subdue 9.1% CPI. Time will tell whether peak FF will need to go to 4%+ for an extended period. We prepared this presentation

[status/1547410085315547138] pscmevents.com/wp-content/upl… [t.co link truncated by threadreaderapp] for today’s NY Fed IACFM meeting. In the pres, we summarize the Burns/Volcker experience and why we believe the Fed will keep FF at higher levels for longer even if we enter a recession in 2023 or sooner, and why we believe demand will remain elevated,

[status/1547410086963941377] supply will remain constrained and high levels of inflation will persist. The Fed has two blunt tools, FF and managing expectations. Year-end FF projections are beginning to approach where they need to be. Market expectations for FF need to be managed upward beginning at year end

[status/1547410087811158016] and for the next 18-24 months. Markets remain dismissive of dot plots and recent statements by Fed governors on the risk of allowing inflation expectations to become unanchored. I expect the market will adjust FF expectations upward as the Fed provides more clarity and emphasis

[status/1547410089342025731] on the need for higher rates for longer, and when market participants carefully review the ‘70s and early ‘80s precedents and their comparability to current economic conditions. As always, I welcome your feedback.

Key Themes

• Asymmetric Hedging — the threads anchor the public case for a cheap, convex interest-rate position that would pay off if the Fed moved further than priced
• Avoiding Extrinsic Risks — inflation, wage-price dynamics, and central-bank credibility sit outside any single company's control
• Inversion and Stress Testing — inverting the consensus: what if the Fed does not pivot at the first sign of recession?
• Volatility vs. Permanent Loss of Capital — using macro protection to avoid forced liquidation of the long equity book
• CNBC Squawk Box on Inflation — the same argument delivered on air in the same period, with the swaption position as the common thread

Context & Significance

This is Act IV, the renaissance, and the mindset is defensive offense. By mid-2022 Ackman has reshaped Pershing Square around simple, predictable, permanently capitalized businesses, but that portfolio is vulnerable to a sudden regime change in real rates. The Twitter threads are part of a broader public campaign — alongside the Squawk Box interview and investor letters — to explain why the fund is hedged and why the consensus is underpricing the Fed. The tone is urgent and pedagogical rather than combative: Ackman is trying to move market expectations, not just describe them.

The threads also mark a shift in medium. Where the golden-era Ackman published sixty-four-slide decks and SEC filings, the renaissance Ackman reaches for the platform where policy commentators and allocators now argue in real time. The compression into tweets does not flatten the argument; if anything, it forces him to lead with the most consequential claims. The honest retrospective is that macro forecasting in public is a different kind of risk than a stock-specific short thesis: being right on direction still leaves room to be wrong on timing, and every tweet becomes a timestamped prediction. What the threads document is not infallibility but a manager willing to stake capital and reputation on the view that the Fed was farther behind the curve than the market believed.