Tesla CEO Elon Musk has warned that higher rates by the Federal Reserve will threaten inflation in the US economy. Musk’s warning follows an analysis by ArchInvest CEO Kathy Wood, who warned that “leading inflation indicators such as gold and copper indicate inflation risk.”
Elon Musk, Fed rate hikes, and deflation
Tesla and SpaceX CEO Elon Musk tweeted Friday evening: “Key Fed rate hike threatens inflation. His tweet caught the attention of many. As of this writing, it has been liked 80K times and retweeted nearly 7K times.
Comments flooded in, with some agreeing with Tesla’s CEO and others saying he was wrong about the US economy. Real Vision CEO and crypto investor Raul Pal tweeted: “Yes. Too much baked into the cake.
Sven Heinrich, founder and chief market strategist at NorthmanTrader, emphasized that the risk is that the Federal Reserve is “outcome-prone.” The central bank was “too slow to react in the first place” and is “now slamming its foot on the brakes,” he said, stressing that the Fed “risks breaking things too quickly on backward-looking data.”
Gold bug and bitcoin skeptic Peter Schiff responded to Musk and offered a different perspective:
It risks high inflation. Higher debt service costs, a severe recession, federal budget deficits, and falling asset prices will lead to a financial crisis worse than 2008. The Fed responds with massive QE, hoarding the dollar and sending consumer prices soaring.
Politicians also criticized the discussion. Congresswoman Nancy Massey (R-SC) commented: “If [U.S. President Joe] Biden and [House Speaker Nancy] Pelosi wouldn’t have spent trillions of dollars that we don’t have, we wouldn’t be having this speech…”
Federal Reserve Chairman Jerome Powell emphasized the central bank’s hawkish stance in a recent speech in Jackson Hole, Wyoming. He said the Fed’s fight against inflation “will bring some pain.” Many people are concerned about the Federal Reserve raising interest rates, including Sen. Elizabeth Warren (D-MA), who said she is “deeply concerned” that the central bank’s actions could lead to a recession in the US economy.
Musk’s Twitter did the following Analysis Ark Invest CEO Kathy Wood warned of deflation on Wednesday. “The Fed’s monetary policy decisions are based on lagging indicators: employment and core inflation,” she explained.
Major inflation-adjusted commodities such as gold and copper represent inflation risk. Even oil prices have fallen more than 35%, wiping out most of this year’s gains.
“One of the best gauges of inflation, gold is down about 15 percent from a high of $2,075 in August 2020 two years ago. Lumber prices are down 60%, copper -30%, iron ore -60%, dram -46% and crude oil -35%,” explained Wood.
“Further downstream, retailers appear to be swimming in products they’re forced to discount heavily to clear holiday inventory. The surprise could be a year-end decline in the CPI and PCE deflator,” the executive added. “Inflation is turning into deflation in the pipeline.”
Musk said inflation peaked in August and is “declining rapidly.” He predicted an 18-month recession.
Do you agree with Elon Musk that higher Fed rate hikes could lead to deflation? Let us know in the comments section below.
Image credits: Shutterstock, Pixabay, Wiki Commons
DisclaimerThis article is for informational purposes only. It is not an offer or solicitation to buy or sell, or a recommendation or endorsement of any products, services or companies. Bitcoin.com does not provide investment, tax, legal or accounting advice. Neither the Company nor the Author shall be liable, directly or indirectly, for any damages or losses arising out of the use of or reliance on any content, goods or services referred to in this paragraph.