The Federal Reserve seems like the only avenue to subdue inflation. Bill Ackman, the legendary hedge fund executive, has a different idea.
At the moment, the Federal Reserve appears to be the only game in town to subdue inflation.
The Fed has raised interest rates by 3 percentage points since March to fight the 8.3% surge in consumer prices for the 12 months through August.
But hedge-fund star Bill Ackman, chief executive of Pershing Square Capital Management, has another idea.
“Why don’t we reduce the Federal Reserve’s need to raise rates by expanding immigration now?” he wrote on Twitter.
Average hourly wages soared 5.2% in the 12 months through August.
Of course, Republicans aren’t too keen on the idea of boosting immigration. Earlier this month, Texas Gov. Greg Abbott and Florida Gov. Ron DeSantis cooperated to send immigrants from Texas to Massachusetts, a move of questionable legality.
In any case, Ackman sees solid economic backing for his idea.
“Inflation can be mitigated by reducing demand and/or by increasing supply,” he tweeted. “The Federal Reserve can only reduce demand by raising rates, a very blunt tool. Wage inflation will likely continue until rates rise to restrictive levels.”
Goldman Sachs View
Goldman Sachs agrees with Ackman that increased immigration would help ease inflation. “The biggest gap between job openings and available workers in postwar history is one of the key reasons that inflation is soaring in the U.S.,” the bank said in a May 31 report.
“A drop in immigration has helped push the gap wider, suggesting an increase in foreign-born workers could help contain the rise in wages and prices.”
The pandemic and Trump administration restrictions pushed immigration down from 2019 through 2021. That left the workforce about 1.6 million people smaller than its prepandemic trend would have dictated, Goldman points out.
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“While green-card issuance and temporary work visas have rebounded recently to roughly their previous levels, immigration rates would need to increase even more to make up for the shortfall.”
To be sure, the U.S. government is unlikely to lift annual immigration by more than a few hundred thousand people, Goldman said. That would make a “modest dent in the [labor] shortfall, but not enough to close it.”
Thus, the Fed would still bear most of the burden to curb wage inflation — “by raising interest rates enough to slow the economy,” the bank said.
On the bright side, an added bonus from boosting immigration is the help it could provide to some Russian citizens and the damage it could do to the Russian government, Ackman said.
“Let’s remove the barriers for Russia’s brightest,” he tweeted. “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.”
So, “if we can target immigration policy to achieve important political objectives like catalyzing a Russian talent drain to the U.S., why shouldn’t we?” Ackman tweeted.