Elon Musk Warns A ‘Severe Recession’ Will Be More Likely If Federal Reserve Doesn’t Take Action On Rate Hikes
Elon Musk
Michael Gonzalez via Getty Images

Elon Musk warned that a significant recession would occur in the United States if policymakers at the Federal Reserve do not adjust their current approach to interest rates.

The central bank has increased target federal funds rates by 0.75% on four consecutive occasions, marking the most aggressive rollback of loose monetary policy in decades. Interest rates across the economy, such as mortgage rates and the premiums faced by businesses and consumers to borrow money, have quickly risen as a result.

Vincent Yu, the founder of Tesla accessories provider Tesmanian, predicted a “real economic recession” next year, leading Musk to call the present direction of the economy “concerning.” He added that the Federal Reserve is “massively amplifying the probability of a severe recession” and “needs to cut interest rates immediately.”

Some analysts, including Wharton School finance professor Jeremy Siegel, have criticized the central bank amid the return to a contractionary monetary regime, contending that officials who were slow in their response to rising price levels are now causing harm through their excessive zeal to manage inflation. Musk, who said over the summer that he has a “super bad feeling” about the economy, commented on social media that Siegel is “obviously correct.”

In an attempt to stimulate the economy, policymakers at the Federal Reserve had pegged a 0% target interest rate and began acquiring government bonds from the marketplace immediately following the onset of the lockdown-induced recession.

The stock market generally dislikes rate hike decisions because of their negative implications for future economic activity. However, investors reacted positively in the immediate aftermath of the most recent announcement since a statement from the Federal Reserve Board of Governors affirmed that officials “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” The new language had not been included in previous releases.

Musk, who serves as the chief executive of SpaceX, Tesla, and Twitter, also predicted that a global recession could last through 2024. He remarked that the former two companies are in “good positions” to weather the economic headwinds.

In an earnings call for Tesla last month, the world’s richest man said that China is experiencing “a recession of sorts” while Europe is likewise seeing “a recession of sorts driven by energy.” He believes that North America is in “pretty good health” and forecasted that the Federal Reserve would eventually pivot toward a more moderate approach to inflation.

Twitter was among several technology firms that recently eliminated a significant portion of staffers. Musk told remaining employees that they must be prepared to work “long hours at high intensity” to keep their positions and will “be much more engineering-driven.” Some investors have voiced criticism of Silicon Valley for ballooning headcounts, arguing that the current macroeconomic climate presents an opportunity to reduce costs by reconfiguring staff.

Though the labor market has generally remained strong over the past two years, central bankers warned that their actions might increase unemployment. Federal Reserve Chair Jerome Powell vowed that policymakers are committed to returning the economy to a 2% inflation rate, which had been largely maintained over the past three decades.

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