WartaBerita.Net | NEW YORK — Elon Musk gave a bitter and dire warning about the United States economy that must be heeded.
The Tesla Founder and CEO of SpaceX provides a dire warning for the US economy. He revealed the warning through his personal account on the social media platform Twitter.
“A major Fed rate hike risks deflation,” he said in a tweet on Saturday (10/9/2022). For information, the Fed’s interest rate is the benchmark interest rate in the United States set by the American central bank, the Federal Reserve, or often nicknamed “The Fed”.
Elon Musk’s Warning Regarding Fed Policy
Through his tweet, Elon Musk warned that an increase in interest rates by the United States central bank would result in deflation.
Musk’s warning in response to the policy that will be taken by the Fed, is expected to move forward by raising another jumbo interest rate at the FOMC meeting in September 2022.
Musk is not the main figure who provides a doom and gloom scenario for the US economy. Previously, in 2008, the well-known investor and founder of Scion Asset Management, Michael Burry, also predicted an economic crisis in the US.
Meanwhile, economist Peter Schiff actually gives a different view. Peter Schiff warns of hyperinflation. He believes that the Fed will soon turn to quantitative easing which will lead to soaring inflation in the economy.
“Reading” Elon Musk’s Deflation Warning
Elon Musk believes that a rate hike from the Fed this September will lead to deflation.
For the record, deflation is a decrease in the price of goods and services. Deflation can be caused by many factors such as greater productivity, lower demand, or a contraction of a country’s money supply.
According to Musk, the current deflation risk stems from a contraction in the money supply as the Fed engages in qualitative tightening to counter soaring inflation.
Fed Chair Jerome Powell has already promised pain relief for households and businesses. He also revealed that the Fed would try and increase the dollar’s strength to help consumers fight inflation.
Deflation can be good news for consumers who now have more purchasing power for the same amount of currency. However, if the phenomenon continues for a longer period of time, it can result in a shrinking of the economy.
The Fed’s Next Rate Increase
The Fed’s next rate hike will be decided on September 21, 2022. As of now, CME Fed Watch is showing a 91% probability of a 75 basis point hike. Goldman Sachs also changed its prediction from a 50 bps increase to a 75 bps increase.
The CPI data on September 13, 2022 will also have a big impact on the decision.