Editorial StaffThe billionaire thinks a bold move by the Fed may be more devastating to the economy than current inflation.
Inflation is by far the word of the year 2022.
Soaring prices of goods and services are at their highest in 40 years, which considerably affects the purchasing power of households.
To relieve consumers, the Federal Reserve has embarked on an aggressive monetary policy, marked by a sharp rise in interest rates. Economists warn that this monetary policy, also observed in other regions of the world, particularly in Europe with the European Central Bank, risks causing a so-called “hard landing” for the U.S economy. Basically, if the Fed continues to be so aggressive in its monetary tightening, it risks causing a recession.
While many companies have passed on their rising costs to consumers by raising the prices of their products, there are also many firms that have started to lay off workers. Alphabet (GOOGL) , the parent company of internet giant Google, has just warned that the company is likely to make layoffs in the near future to be 20% more efficient than it is today.
“The more we try to understand the macroeconomy, we feel very uncertain about it,” said CEO Sundar Pichai at the 2022 annual Code Conference in Los Angeles on Sept. 6. “The macroeconomic performance is correlated to ad spend, consumer spend and so on.”
Fed Might Cause Deflation
But despite the warnings the Fed has decided to continue its fight against inflation. During his last public remarks before the Sept. 21 policy meeting, Fed Chairman Jerome Powell essentially cemented the case for a third consecutive 75 basis point rate hike.
“We need to act now, forthrightly, strongly as we have been doing, and we need to keep at it until the job is done,” Powell said on Sept. 8. “The Fed has and accepts responsibility for price stability.”
The CME Group’s FedWatch is pricing in an 86% chance of a 75 basis point rate hike, the third in succession, as investors look for a so-called ‘terminal’ Fed Funds rate that is north of 4% before Powell signals a paused in the monetary tightening.
Elon Musk, the richest man in the world, believes that if the Fed proceeds, as now expected by the markets, with a jumbo interest rate hike, the institution will cause deflation. In short, most goods and services will be ridiculously cheap.
“A major Fed rate hike risks deflation,” said the CEO of EV manufacturer Tesla (TSLA) on Twitter on Sept. 9.
Source: The Street
