Bill Ackman: Rate Hikes Now May Increase Inflation
Bill Ackman questions the premise that the Federal Reserve's rate hikes will curb inflation. Traditional models suggest that rate hikes suppress demand and investment; he believes that the demand for intelligence and energy is not influenced by interest rates, as the returns from the superintelligence race are nearly infinite, and the demand for computing power is incalculable. The cost of interest permeates all aspects, and rate hikes at this point may actually exacerbate inflation and force the central bank to continue raising rates, creating a self-reinforcing cycle.
On September 16, the Federal Reserve raised the federal funds target range by 25 basis points to 3.75%–4.00%, unanimously stating that inflation remains elevated. The 2026 PCE forecast is 3.7%, with core PCE at 3.4%, both above the 2% target. Governor Paulson subsequently identified the expansion of artificial intelligence as a source of inflationary pressure, leading the market to revise the probability of another rate hike upward. The two-year Treasury yield briefly reached 4.76%.
Ackman wrote in July that the superintelligence race must be won by the U.S., or the nation and democracy will be under pressure; China does not impose the same restrictions on data centers. He connects this judgment to the interest rate transmission chain: capital expenditures on data centers, electricity, and chips are treated as military spending insensitive to interest rates, with interest merely embedded in electricity prices, cloud bills, and equipment leases. Jeffrey Gundlach concurrently argued that if one respects their own forecasts, a 50 basis point increase should be made, pointing out that credit spreads widened rapidly after AI bond issuance.
The breaking point of the old model is the investment function. Housing and discretionary consumption will contract with mortgage and auto loan tightening; the decision variable for training clusters is "Is the competitor still consuming electricity?" rather than whether the cost of capital is 25 basis points higher than last time. With demand not decreasing, rate hikes become cost-push. Ackman concludes with a question: Is the old model no longer applicable to the current paradigm, and has the Federal Reserve just made a mistake?
In market mechanisms, what is sold is the demand from interest-sensitive sectors, while what is bought are rigid orders for AI electricity and chips. Funds from interest payments after rate hikes flow into utilities, GPU leasing, and data center debt, then return to businesses and consumers at higher cloud prices and hardware premiums. Beneficiaries are computing power sellers who can pass interest costs into contracts, while those under pressure are bond funds that still trade front-end rates according to the Taylor rule. If inflation is driven by military-style spending, the steeper the rate hike path, the higher the embedded costs.
Source: Public Information
ABAB AI Insight
Ackman's Pershing Square relies on macro narratives for equity pricing. He does not deny the historical Phillips curve but argues that the largest investment item in 2026 has shifted from interest-sensitive assets to competition assets with nearly infinite returns. Superintelligence is framed as a positive expectation, an indispensable military buildup, thus the cost of capital loses its braking function, leaving only a pricing function.
The capital path is the securitization of technology capital expenditures. Microsoft, Amazon, Meta, and power companies issue bonds to build data centers, with interest entering electricity prices and cloud pricing, then into core PCE. The Fed's 25 basis point hike will not lead competitors to cancel clusters but will only pass the coupon to downstream. Continuous construction in China makes it harder for the U.S. to unilaterally slow down. The widening credit spreads seen by Gundlach are the bond market re-pricing "issuing bonds to build AI," while the stock market still trades on infinite returns.
Similar breaks were seen during the 1970s oil shocks: interest rates cannot eliminate essential demand, only embed interest into prices. This is also seen in wartime finance: military spending is insensitive to the cost of capital. We are currently in a phase of "tools still exist, but targets have changed": the federal funds rate still targets housing and employment, while the largest nominal demand is in computing power and electricity.
Structural judgments pertain to the transfer of pricing power. The dominant factors of inflation have shifted from labor and rent to electricity, chips, and interest capitalization. The mechanism is: when the expected return on an investment is framed as infinite, rate hikes no longer reduce quantity but only increase price; the more the central bank raises rates according to the old model, the larger the embedded interest component of inflation becomes.
ABAB News · Law of Cognition
The competition for infinite returns does not respond to rate hikes as a brake.
Interest embeds into electricity prices, making rate hikes cost-push.
The model targets housing, while expenditures are already consuming electricity.