American billionaire Elon Musk warned of an economic recession if interest rates were raised again.
According to Arabiya Net, Elon Musk said yesterday in a message on Twitter: If the Fed raises interest rates again next week, the recession will swell dramatically.
It 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 prediction. Like his previous predictions, this is deeply troubling.
The Federal Reserve has raised interest rates sharply in recent months, raising the benchmark rate from near zero during the pandemic to a range of 3.75% to 4%, in an effort to combat inflation that has reached its highest levels in 40 years.
But many economists say such aggressive monetary policy will plunge the economy into recession, according to The Street.
The recession will be greatly magnified
The Central Bank holds a two-day meeting on December 13 and 14. Policy makers are expected to raise interest rates by 50 basis points, after 4 consecutive hikes by 75 basis points.
In addition, the Fed will publish its first quarterly forecasts since September. This will provide clues as to where the central bank sees the US economy heading over the next few years.
Musk believes that if the Fed announces a rate hike as expected, it will be a huge mistake. He has warned that the decision will plunge the economy into a deeper recession than is already expected.
The CEO of electric car maker Tesla also agrees with investment pioneer Kathy Wood, who continues to assert that a sustained rise in prices will lead to deflation, a risk Musk already pointed out last September.
Wood wrote in a tweet: The bond market seems to be indicating that the Federal Reserve is making a huge mistake. At -80 basis points (as measured by 10-year versus 2-year Treasury yields), the yield curve is more inverted now than at any time since the early 1980s when double-digit inflation took hold.
She added, Usually, an inverted yield curve indicates recession and/or inflation that is less than expected. In our opinion, deflation is a much bigger risk than inflation. Commodity prices and massive retail discounts support this view. Musk responded to it with a tweet: Absolutely.
Deflation versus inflation
But economist Peter Schiff disagrees with Musk and Wood.
Schiff commented on Musk's post: In fact, the yield curve reflects investors' expectations that the Fed will succeed in bringing the inflation rate down to 2%. The investors are wrong. The only thing the Fed will succeed in doing is making the recession worse, which will crush the dollar and push up consumer prices.
