Bill Ackman, founder of Pershing Square, posted on X questioning whether the Federal Reserve’s decision to restart rate hikes this month could be a mistake. His argument is that the AI arms race is rewriting the traditional logic that rate hikes suppress demand and thereby bring down inflation. At the end of the post, he wrote: “I think the Fed may have just made a mistake. Am I right or wrong?” The post has already garnered more than 1.6 million views within two days and has sparked considerable debate on social media.

Fed’s first rate hike in three years

According to a CNBC report, on September 16 the Fed unanimously approved a 1-step rate hike (25 basis points) by a vote of 12–0, raising the federal funds target range to 3.75%–4%. This was the first rate hike since 2023, and officials indicated that there may be another increase later this year. At the first five meetings this year, the Fed held rates steady. The shift this time was mainly due to stubborn inflation driven by higher energy prices.

At a press conference, Chair Kevin Warsh said inflation has become “too high, and too long,” and the committee has not seen signs that underlying inflation will return to target at a fast enough pace. The dot plot shows that most officials expect the year-end interest rate to be between 4.1% and 4.4%, higher than previously estimated. As of the 12 months through July, the U.S. CPI rose 3.4% year over year, still above the Fed’s 2% inflation target.

Ackman’s argument: computing power demand is “immune” to interest rates

Ackman’s reasoning breaks down into three steps. First, Fed rate hikes can suppress inflation, assuming that high interest rates curb demand and investment. Second, in the AI era, this assumption may not hold: the rewards for winning the super-intelligence competition are almost unlimited, and demand for intelligence and energy won’t decline just because interest rates rise—computing power demand is “incalculable.” Third, if demand can’t be brought down, rate hikes would instead let interest costs seep into the prices of all goods and services, pushing inflation higher. The Fed would then have to raise rates again, creating a vicious cycle.

It’s worth noting that the Fed also said in its own statement that capital investment is strong and productivity growth is strong. In other words, Ackman is pointing to the same set of figures the Fed is looking at—just interpreting them in opposite directions.

The counterargument: AI investment doesn’t equal the overall economy

This argument also has clear weaknesses. First, while AI capital expenditures are enormous, they still account for only a portion of total U.S. demand. Sectors that are more sensitive to interest rates—such as consumer credit, mortgages, and small- and medium-sized business financing—are larger. After rate hikes, the costs of credit cards, home equity lines of credit (HELOCs), and floating-rate commercial loans would rise immediately, and demand in these areas would still be suppressed. Second, the claim that “rate hikes will raise inflation” is close to the view of the Neo-Fisherian school of thought in economics, which is a non-mainstream position with limited empirical support. Third, energy prices are one of the key factors driving inflation recently, and this inflation surge is not driven purely by AI demand.

Bill Ackman questions whether the Fed should raise rates: Will the AI arms race make traditional inflation models fail? First appeared on Lian News ABMedia.