The Federal Reserve has been aggressively raising interest rates in hopes of cooling the economy and curbing inflation, which remains close to one. 40 year high 8.3% in August.
And now some of Wall Street’s most famous minds are making the case that the Fed doesn’t have the tools it really needs to beat inflation.
While central banks may act to slow the demand side of the economy, their policies do not have much effect on the supply of goods, services or workers. And many economists and top investors argue that increase in domestic production of rare items and objects, together with a expansion of workforceInflation is an important piece of the puzzle.
On Thursday, Pershing Square Capital Management CEO Bill Ackman made the case that immigration, not the Fed, could be the solution to inflation, in a very different tone to his. bad comments A few months ago, the officials of the central bank were urged to increase the rates.
“Inflation can be reduced by reducing demand and/or increasing supply. The Federal Reserve can only reduce demand by raising rates, a very blunt tool,” Ackman wrote. Tweet, “Doesn’t it make more sense to reduce wage inflation with increased immigration than to raise rates, destroy demand, put people out of work and cause a recession?”
The billionaire investor known for his heated debate with the Wall Street titan Carl IcahnooProposal to use Russian immigrants to help ease upward pressure on wages.
“If we can target immigration policy to achieve important political objectives like catalyzing the Russian brain drain into America, why shouldn’t we?” He has written.
“Let’s remove the barriers to Russia’s brightest people. The most talented Russians must leave now before they become fodder in an unjust war. Doing so saves our economy and destroys Russia’s future,” he said. added to a separate Tweet,
Ekman’s remarks came after Russian President Vladimir Putin ordered mobilization of 300,000 reservoirs To fight in the Ukraine war on Wednesday, thousands of Russians led flee the country, Russia was already experiencing a severe brain drain, with about 4 million Russians Moving to greener pastures in the first three months of 2022 alone. Ackman argues that the US should be prepared to take on at least some of these disaffected Russians to help boost our workforce and combat inflation.
Potentially reducing inflation thanks to Ackman’s talk about immigration, a National Bureau of Economic Research study Harvard economist George Borjas found that increased immigration lowered the wages of competing domestic workers, which could have a cooling effect on inflation.
and researchers from the Federal Reserve Bank of Kansas City explained in a May article That when immigration slows, it can raise wages domestically and drive up inflation.
While it may seem counterintuitive for economists and investors to advocate for more immigration to slow wage growth, their fear is that a Wage-Price Spiral-Where Inflation-induced wage increases contribute to company costs, which then drive up prices even higher – eventually making inflation impossible to control.
Olivier Blanchard, former chief economist of the IMF, just said last week He believes the US is already experiencing a pay-price spiral, and warned that halting the trend would require potentially significant job losses.
a big shift
Ackman’s latest comments about the Fed preventing a recession with its rate hike represent a seismic shift in his thinking over the past few months.
Back in June, Billionaire Called the Fed get “aggressive”With a 75-basis-point interest rate hike, it argued that the institution was losing credibility because of officials’ reluctance to fight inflation.
Ackman got her wish. Fed raises rates 75 basis points in Junethen proceeded with two more 75-basis-point increases july And septemberMarks the fastest pace of US monetary policy hardening since the 1980s.
But now, with the S&P 500 down more than 10% this month, more and more economists claim a recession is imminent, with Ackman warning that the Fed may be overdoing it.
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