Author: smarttalksucce

Billionaire hedge fund manager Bill Ackman called Friday for the Federal Reserve to begin reining in the support it has provided for the U.S. economy during the coronavirus pandemic.

In separate tweets, the head of Pershing Square Holdings, with $13.1 billion under management, said the central bank should start turning off the monetary juice right away.

He teed up his position by saying he met last week with officials at the Fed’s New York branch, which houses the trading desk that carries out the wishes of officials regarding interest rates and the monthly asset purchase program.

“The bottom line: we think the Fed should taper immediately and begin raising rates as soon as possible,” he said.

“We are continuing to dance while the music is playing,” Ackman added, “and it is time to turn down the music and settle down.”

The statements come just a few days before the Federal Open Market Committee is set to begin its two-day policy meeting Tuesday.

For Ackman, insisting on the taper isn’t anything radical: Investors widely expect the FOMC on Wednesday to announce that it soon will start pulling back on its monthly asset purchase program in which the Fed is buying at least $120 billion of bonds. Markets are looking for monthly pullbacks of $10 billion in Treasurys and $5 billion in mortgage-backed securities, possibly starting in November and concluding in the summer of 2022.

Calling for interest rate hikes is another matter.

Fed officials have stressed that the initiation of tapering shouldn’t be construed as a path to rate hikes. The central bank has been holding its benchmark overnight borrowing rate near zero since the early days of the Covid-19 pandemic, and most FOMC officials have indicated that the first increase won’t come sooner than late 2022.

However, traders lately have been pricing in more aggressive moves, with futures contracts pointing to at least two quarter percentage point 2022 rate hikes, beginning in June, according to the CME’s FedWatch tool. There’s also just shy of a 50-50 chance of another increase coming in December. The recent anticipation of hikes comes with inflation running around a 30-year peak.

Ackman said he’s beginning to position his portfolio for higher rates.

“As we have previously disclosed, we have put our money where our mouth is in hedging our exposure to an upward move in rates, as we believe that a rise in rates could negatively impact our long-only equity portfolio,” he tweeted.

Pershing Square is up 15.7% gross in 2021 and 12.2% net of fees this year, lagging the S&P 500’s 22.5% return, according to company statements. That comes after a stellar 2020 during which the fund returned 70.2% on net. The firm has attracted about $1.3 billion of additional assets this year.

— CNBC’s Yun Li contributed to this report.

The U.S. economy grew at a 2% rate in the third quarter, its slowest gain of the pandemic-era recovery, as supply chain issues and a marked deceleration in consumer spending stunted the expansion, the Commerce Department reported Thursday.

Gross domestic product, a sum of all the goods and services produced, grew at a 2.0% annualized pace in the third quarter, according to the department’s first estimate released Thursday. Economists surveyed by Dow Jones had been looking for a 2.8% reading.

That marked the slowest GDP gain since the 31.2% plunge in the second quarter of 2020, which encompassed the period during which Covid-19 morphed into a global pandemic that resulted in a severe economic shutdown that sent tens of millions to the unemployment lines and put a chokehold on activity across the country.

Declines in residential fixed investment and federal government spending helped hold back gains, as did a surge in the U.S. trade deficit, which widened to a near-record $73.3 billion in August.

The drops mostly offset increases in private inventory investment, a meager gain in personal consumption, state and local government spending, and nonresidential fixed investment.

Consumer spending, which makes up 69% of the $23.2 trillion U.S. economy, increased at just a 1.6% pace for the most recent period, after rising 12% in the second quarter.

Spending for goods tumbled 9.2%, spurred by a 26.2% plunge in expenditures on longer-lasting goods like appliances and autos, while services spending increased 7.9%, a reduction from the 11.5% pace in Q2.

The downshift came amid a 0.7% decline in disposable personal income, which fell 25.7% in Q2 amid the end of government stimulus payments. The personal saving rate declined to 8.9% from 10.5%.

Federal government spending fell by 4.7%, which the Commerce Department said was due to a halt in services and processing for the Paycheck Protection Program, a pandemic-era initiative aimed at providing bridge funding to businesses impacted by the shutdown.

“Overall, this is a big disappointment given that the consensus expectation at the start of the quarter in July was for a 7.0% gain and even our own bearish 3.5% forecast proved to be too optimistic,” wrote Paul Ashworth, chief U.S. economist at Capital Economics. “We expect something of a rebound in the final quarter of this year — if only because motor vehicles won’t be such a drag and any negative impact from Delta should be reversed.”

In a separate economic report, jobless claims totaled 281,000 for the week ended Oct. 23, another pandemic-era low and better than the 289,000 estimate. The total marked a decrease from the previous week’s 291,000. Continuing claims fell by 237,000 to 2.24 million, and those receiving benefits under all programs dropped by 448,386 to 2.83 million.

Stock market futures remained higher after the report while government bond yields also climbed.

The July-to-September period saw a major clogging of the nation’s supply chain, which in turn dampened a recovery that began in April 2020 following the shortest but steepest recession in U.S. history.

Shortages in labor and soaring demand for goods over services contributed to the bottleneck, which is not expected to ease until after the holiday season.

Despite the Q3 weakness, economists largely expect the U.S. to bounce back in the fourth quarter and continue growth into 2022.

Another significant factor for the Q3 number was the summertime rise of the Covid delta variant, a situation that has reversed itself in much of the country. Consumer activity, particularly in the vital services part of the economy, appears to have picked up and could fuel a late-year growth burst.

“As Delta cases continue to subside, there may be more growth in the fourth-quarter as consumers will be more willing to spend on services involving in-person interactions,” said Dawit Kebede, senior economist at the Credit Union National Association. “The supply chain challenges, however, will likely continue until next year making it difficult to satisfy increased consumer demand.”

Companies during the current earnings season have noted the issues with supply chains, but many say customers are willing to pay higher prices. That in turn has helped fuel inflation, which is running close to its 30-year high and also is expected by most economists and Federal Reserve policymakers to cool next year.

Thursday’s data indicated that at least the pace of the inflation rise had taken a step back.

Core personal consumption expenditures, which exclude food and energy and are the preferred gauge by which the Fed measures inflation, rose 4.5%, a deceleration from the second quarter’s 6.1% increase but still well above the pre-Covid pace. The headline PCE price index increased 5.3% in Q3, down from 6.5% in the previous period.

Correction: The personal saving rate declined to 8.9% from 10.5%. An earlier version misstated the move.