Elon Musk warned that the Federal Reserve will raise interest rates too aggressively this month in an effort to crush inflation, which will lead to a dramatic drop in prices, which will cast a shadow on companies.
“A large Fed rate hike threatens deflation,” Tesla and SpaceX CEO said in a tweet Friday.
The Fed raised its benchmark interest rate from near zero in March to between 2.25% and 2.5% today, in response to inflation which has risen to a 40-year high this year. . The US central bank did not rule out a third consecutive 0.75 basis point hike at the end of the month.
Higher interest rates make saving more attractive and borrowing more expensive, which helps to reduce aggregate demand and thereby put upward pressure on prices. On the other hand, an excessive drop in prices can erode corporate profits, which in turn leads to slowdown in economic growth and high unemployment rates.
Musk noted in March that both Tesla and SpaceX are seeing sharp increases in the cost of raw materials and logistics. In July, after Tesla raised the prices of its cars several times, Musk hinted that the automaker could lower prices if inflation eases. About a month later, he confirmed that inflation in the United States had peaked and predicted that the economy would slide into a mild recession lasting about 18 months.
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