Bill Ackman says his firm is holding onto its stock picks as it anticipates Fed rate hikes cutting inflation to more than half current levels

• Pershing Square founder Bill Ackman said he sees inflation being halved a year from now in response to the Federal Reserve's interest rate hikes.
• "Our biggest fear was inflation," the hedge fund boss said in supporting the Fed raising rates quickly and soon.

Billionaire hedge fund manager Bill Ackman said he expects inflation to be at least halved by next year in response to the Federal Reserve's ratcheting up of interest rates.

The CEO and founder of Pershing Square Capital told CNBC on Tuesday he expects the central bank has more rate increases in the pipeline. The central bank has raised its Fed Funds rate four times this year.

"I think what they've said they're going to do, they have to do, which is raise rates to something in order of 4% or maybe a little bit more — short rates — keep them there for a reasonably extended period of time a year or so. And then hopefully inflation starts to come off," he said.

Ackman said investors are already seeing indications that inflation is coming down. "It's four percent … three and a half percent, hopefully. It's on its way down," he said in answering at what rate he sees inflation sitting at 12 months from now.

A drop in gasoline prices helped pull headline consumer price inflation to 8.5% in July, from June's 9.1% rate which was a 41-year high. The CPI rate remains well beyond the Fed's 2% target.

US stocks have dropped over the past three weeks in part after Federal Reserve Chairman Jerome Powell at his Jackson Hole speech signaled that interest rates will remain elevated as it fights to drag down inflation.

"We own the same companies we've owned really in the beginning of the year, absent a new investment that was very short-dated in Netflix," Ackman said. "We think ultimately if you own great businesses, you can ride through a challenging time like this. Our biggest fear was inflation and that's why I wanted the Fed to raise rates quickly and soon."

Pershing Square Capital Management's roughly $7.46 billion portfolio includes a handful of companies: Canadian Pacific Railway, Chipotle, Hilton, real estate firm Howard Hughes Corp., Restaurant Brands International, which runs Burger King, and Lowe's. The firm this year sold off its stakes in Domino's Pizza and Netflix.

Ackman earlier this year said inflation was "out of control" and that the Federal Reserve had lost credibility in its attempt to confront inflation. "Markets are imploding because investors are not confident that the @FederalReserve will stop inflation," he tweeted in May.

But since then, gas prices have been on the decline, with the national average hitting $3.77 a gallon as of Monday, according to the AAA motor club. The August CPI report is scheduled for September 13.

The Federal Reserve is expected to raise interest rates at its September 20-21 meeting by another 75 basis points, although investors are still eyeing the potential of a move of 50 basis points. The Fed Funds rate stands at a range of 2.25% to 2.5%.