Bill Ackman says the US economy faces a real risk of a 'hard landing' if the Fed doesn't cut interest rates soon

• Bill Ackman said in a Bloomberg podcast he expects the US Federal Reserve to cut rates soon.
• He said the US economy risks a sharp downturn if the Fed doesn't cut interest rates soon.
• The Fed has raised interest rates 11 times since March 2022 to cool soaring inflation

Bill Ackman expects the US Federal Reserve to cut rates as early as the first quarter of next year.

The Fed needs to cut interest rates soon to avoid a sharp downturn in the US economy, the billionaire investor said on Bloomberg's "The David Rubenstein Show: Peer-to-Peer Conversations."

"I think there's a risk of a hard landing if the Fed doesn't start cutting rates pretty soon," said Ackman, founder of hedge fund Pershing Square with $16 billion in assets under management.

The Fed has raised interest rates 11 times since March 2022 in an effort to cool soaring inflation. Inflation hit a 3.2% increase in October, compared to October 2022. That's still above the Fed's 2% inflation target.

The Fed funds rate target rate is now in the 5.25% to 5.5% range, which is "very high" when inflation trends below 3%, Ackman told Rubenstein, cofounder and co-chairman at the private equity giant Carlyle Group.

"What's happening is the real rate of interest, which is what impacts the economy, keeps increasing as inflation declines," Ackman added.

Higher interest rates dampen spending and control price rises. They also curb business investment, in turn slowing the economy. While this is desirable in an economy that is running too hot, there are concerns about slowing it too much amid macroeconomic uncertainties including fallout from the Israel-Hamas war and China's flagging economy.

A Deutsche Bank analysis last week showed that for the first time since January 2021, there are more central banks cutting rates than those hiking them.

While major central banks like the Fed and the European Central Bank are keeping rates steady right now, there are bets that they, too, will start to hike rates in the months ahead.

Swiss bank UBS, for one, said earlier this month it's expecting the Fed to slash rates as the US economy enters a recession around the second or third quarter of next year.

A global trend in interest rate cuts would bring relief to debtors as it would lower the cost of borrowing for anything from mortgages to credit cards.

"There's been a huge subsidy in terms of low-interest rates, and most companies fix their rates or their debt at very low rates, and certainly real estate investors did the same," said Ackman, referring to much lower interest rates before the Fed's current rate hike cycle. "That works until it doesn't work."