Elon Musk says inflation may be easing, Bill Ackman scoffs at Fed at neutral
gesrey

After a week full of economic analysis on inflation, GDP and, of course, the Fed, Friday morning brings some different perspectives. And when these guys tweet, people listen (or is it read?).
Elon Musk tweeted overnight simply "Inflation might be trending down."
"More Tesla (NASDAQ:TSLA) commodity prices are trending down (for what it's worth)," he added.
Musk has been weighing in on the inflation debate from the CEO perspective and earlier this month said that TSLA could lower car prices if inflation slowed from four-decade highs.
Meanwhile, Bill Ackman, founder of hedge fund Pershing Square, took aim at Federal Reserve Chairman Jerome Powell's view of the fed funds rate after the latest 75-basis-point hike.
"On Wed, Powell said that the @federalreserve had gotten rates to neutral: 'Weâre at 2.25 to 2.5 and thatâs right in the range of what we think is neutral,'" Ackman tweeted. "The bond and stock market have rallied substantially since as the implication is that rates need not increase much more."
"The problem is that we are not close to a neutral rate," Ackman said. "While 2.25 to 2.25% may be a neutral rate with 2% inflation, it is an extremely accommodative rate with inflation at 9%. Oneâs cost of borrowing is a function of the interest rate and the rate of inflation during the term of the loan."
Ackman is not alone. There is a large amount of skepticism about the Fed already hitting neutral.
"Inflation reduces the cost of borrowing as it is the ârealâ interest rate that matters. The money in your savings account is decreasing by about 1% per month due to inflation so you are incentivized to spend it and borrow more," Ackman added. "While businesses and consumers donât borrow at the 2.25-2.5% FF rate, they pay a spread. But even at todayâs credit spreads, the real cost of money is still extremely cheap so everyone is incentivized to borrow and spend, fueling inflation."
"That is why in previous highly inflationary economies, the Fed had to raise rates above prevailing levels of inflation to kill it. While I do think inflation will begin to come down soon, I donât think there is any prospect of getting back to 2% without materially higher rates, 4% or more, which are maintained at these levels for extended periods."
"I am puzzled to understand how the Fed believes that we are already at neutral," Ackman said. "It is counter to everything I understand about basic economics."
"A neutral rate of 2.25-2.5% only makes sense in a world with 2% stable inflation. It makes no sense in a world with 9%, 6% or even 4% inflation," he said.
"Powellâs views on the neutral rate have only served to materially ease financial conditions making the inflation problem worse and his job more difficult. The Fed should clarify how it has determined that we are indeed at neutral. Greater clarity would be helpful for all."
Read why Jefferies, in contrast, thinks the Fed has achieved the central banking Holy Grail.