Elon Musk says inflation may have peaked. Bill Ackman agrees, but says the Fed is still making a mistake.

The market has been in full festive mode in the 48 hours since Fed Chairman Jerome Powell said the central bank is switching to a data-driven stance to set interest rates. This is the best you can see on Nasdaq Composite COMP,
+ 1.08%And the
Which rose 4.1% on Wednesday and then another 1.1% on Thursday.

Alfonso Picatiello, author of the blog The Macro Compass, put it succinctly: “You give markets the green light to freely design their probability distributions across all asset classes without any anchor – and that explains the huge rise in risk,” he said. “If the Fed is so data dependent and there is one data they primarily care about, it all boils down to how inflation will develop in the near future — and the bond market has a very strong opinion of that.”

And not just the bond market. “Inflation may be heading lower,” Tesla TSLA CEO Elon Musk said on Twitter.
+ 2.21%.
“More commodity prices in Tesla are trending downward compared to a rapid rise.” Of course, not necessarily for his products. When asked if Tesla car prices will go up, he replied: “It’s too early to be sure.”

Bill Ackman, founder and CEO of Pershing Square, agrees in part. He created a storm of tweets, in which he said that inflation will start to decline soon. But he is convinced that Powell & Co. made a mistake, when the central bank chief said the Fed funds rate between 2.25% and 2.5% is correct in the neutral range, the level that neither restrains nor stimulates the economy.

A neutral rate of 2.25-2.5% only makes sense in a world with a stable inflation rate of 2%. It makes no sense in a world with 9%, 6% or even 4% inflation. “Powell’s views on the neutral rate only helped to materially ease financial conditions, which made the inflation problem worse and made his job more difficult,” Ackman said. He said that in previous periods of inflation, the Fed had to raise interest rates above prevailing levels of inflation to eliminate it.

Ackman said the Fed should explain how it came to the notion that the rate is neutral. Powell answered that question more directly at his June press conference, when asked if the Fed’s rate hike as projected in the point chart, just shy of 4%, would break inflation’s back. “I think the neutral rate is pretty low these days. So I think it will be, but you know what? We’re going to find out empirically. We’re not going to be completely model driven by this. We’re going to look at this, keep our eyes open, and react to the incoming data about both Financial conditions and what is happening in the economy.

Akman is not an honest party. In late May, he said his Pershing Square fund had already transferred “a portion” of its derivatives bet to the short-term Treasuries TMUBMUSD02Y,
2.904%And the
To achieve a profit of 1.4 billion dollars.

The two-year Treasury yield, which closely tracks the federal funds rate, fell 9 basis points Thursday to 2.87% and has fallen over four of the past six trading days.

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