Billionaire Elon Musk has expressed concern about the economy. The richest man in the world has been sounding the alarm for several months now, warning that the economy is facing a deep recession if it continues. The central bank’s monetary policy is on track.
Comes as the Federal Reserve holds its last monetary meeting of the year in the coming days, the businessman has come up with a new forecast. Like his previous predictions, this one is deeply troubling.
The Federal Reserve has raised interest rates sharply in recent months, taking the key rate from near zero during the pandemic to somewhere between 3.75% and 4%, in an effort to fight the inflation it has reached the highest levels in the last 40 years.
However, many economists say that this “aggressive” monetary policy will plunge the economy into a recession, according to the website “The Street”, which has been seen by Al Arabiya.net.
The recession will be greatly magnified
The Central Bank holds a two-day meeting on 13 and 14 December. Policy makers are expected to raise interest rates by 50 basis points, following 4 consecutive 75 basis point hikes.
Additionally, the Fed will release its first quarterly forecasts since September. This will provide clues as to where the central bank sees the US economy heading in the coming years.
Musk believes that if the Fed announces a rate hike as expected, it would be a big mistake. He warned that the decision will plunge the economy into a deeper recession than already anticipated.
If the Fed raises rates again next week, the recession will be greatly amplified
— Elon Musk (@elonmusk) December 9, 2022
“If the Fed raises interest rates again next week, the recession will sharply escalate,” the billionaire said in a Twitter message yesterday.
Even the CEO of electric car maker Tesla agrees with investment pioneer Kathy Wood, who continues to say that sustained price increases will lead to deflation, a risk Musk already pointed out last September.
Typically, an inverted yield curve indicates a recession and/or lower-than-expected inflation. In our view, deflation is a much bigger risk than inflation. Raw material prices and massive retail discounts confirm this point of view.
— Cathie Wood (@CathieDWood) December 7, 2022
“The bond market seems to be signaling that the Fed is making a big mistake,” Wood wrote in a tweet. “At -80 basis points (measured by 10-year versus 2-year Treasury yields), the yield curve is more inverted now than at any point since the early 1980s, when double-digit inflation caught on”.
“An inverted yield curve typically indicates stagnation and/or lower-than-expected inflation. In our view, deflation presents a much greater risk than inflation. Commodity prices and massive retail discounts support this view,” he added.
Musk responded by tweeting “Absolutely.”
In reality the yield curve reflects the expectations of investors that the #Powered will be able to carry #inflation up to 2%. Investors are wrong. The only thing the Fed will be able to do is make the #recession worse, it will crush the dollar and send consumer prices soaring.
— Peter Schiff (@PeterSchiff) December 10, 2022
Deflation versus inflation
But economist Peter Schiff disagrees with Musk and Wood.
Schiff commented on Musk’s post: “Indeed, the yield curve reflects investors’ expectations that the Fed will succeed in bringing the inflation rate down to 2%.” “Investors are wrong. The only thing the Fed will do is make the recession worse, which will crush the dollar and drive up consumer prices.”
