Bill Ackman thinks tighter monetary policy could prove to be a mistake in the era of AI.
The billionaire investor said late Thursday that the Federal Reserve’s decision to hike interest rates last week was the wrong move, because AI may be rewriting the rules that guide the central bank’s response to inflation.
Ackman wrote in an X post that the principle that rate hikes reduce inflation by pushing down demand potentially no longer applies.
“What if the old models don’t apply to the current paradigm and the Fed is wrong?” he mused. “I think the Fed might have just made a mistake.”
The Pershing Square founder theorized that, while higher rates cool demand in normal times, that’s not necessarily the case in the AI era.
“What if higher rates don’t reduce demand and investment because the demand for intelligence and energy is unaffected by higher rates because winning the race for super intelligence has a near infinite ROI and the demand for compute will remain incalculable?” Ackman wrote.
In his view, the Fed’s decision to embark on a new rate hike cycle could actually lead to worse inflation, as higher interest costs become “embedded in everything.”
“The problem is compounded as the more the Fed raises rates, the more inflation we will have and the more the Fed will need to raise rates further and so on.”
Ackman’s post stirred up debate among X users. Some noted that higher rates have already led to more inflation, exacerbating issues of low supply facing certain segments of the economy like housing.
Want more Business Insider in your news feed?
Add BI in Google so our reporting is easier to find when you’re searching for what matters.
Some pointed to the 2022-2023 era as proof that rate hikes worked to cool inflation that had peaked above 9%. But Ackman argued that the world of the pre-AI era was different.
“The world has changed since 2023. That’s my point. We are in a post ChatGPT world in a race toward super intelligence,” he wrote.
Other market pros have been against rates hike recently as well, though for different reasons. Moody’s Analytics chief economist Mark Zandi, argued ahead of last week’s hike that increasing rates would likely be a mistake for the Fed, as it could weigh on consumers while doing little to address major macro issues like the oil shock from the Iran war.