Tesla CEO Elon Musk warned that a Federal Reserve rate hike could lead to deflation. Musk's warning came after Cathie Wood from Ark Invest warned that leading inflation indicators such as gold and copper could indicate the danger of deflation strong>
Elon Musk, Fed Rate Hikes and Deflation
Elon Musk, CEO of Spacex and Tesla, tweeted Friday evening that a Fed rate hike could lead to deflation. It has been liked more than 80K times, and almost 7K times retweeted.
Many comments were received, with some expressing agreement with Tesla CEO, while others argued that he was wrong about America's economy. Raoul Pal, CEO of Real Vision and crypto investor, agreed with Musk tweeting: "Yup. It's all pretty much baked in the cake.
Sven Henrich, Northmantrader's founder and chief market strategist, stressed the danger of the Federal Reserve being too slow to react and "now slamming on the brakes" by emphasizing that the Fed is "too dependent on backward-looking data risking breaking the system quickly."
Peter Schiff, a bitcoin skeptic and gold bug, offered a different perspective to Musk.
It could lead to hyperinflation. It risks hyperinflation. The Fed will respond by imposing massive QE. This will tank the dollar and send consumer prices skyrocketing.
Political figures also joined the conversation. Nancy Mace, a congresswoman from South Carolina, stated that "If [U.S. president Joe] Biden and Nancy Pelosi had not spent trillions of money we don't own, we wouldn't be having these conversations …"."
In a speech in Jackson Hole, Wyoming, Federal Reserve Chairman Jerome Powell highlighted the central bank's hawkish attitude. He said that the Fed's fight to combat inflation will "bring some discomfort." Senator Elizabeth Warren (D.MA) expressed concern about the Federal Reserve raising interest rate. She stated that she is worried that the central bank's actions will lead to the U.S. entering recession.
Musk's tweet came after an analysis by Ark Invest CEO Cathie Wood, who warned of deflation Wednesday. She explained that the Fed bases monetary policy decisions upon lagging indicators, such as employment and core inflation.
Leading inflation indicators such as gold and copper warn of the danger of deflation. Even the oil price is down more than 35% since its peak, which erases most of the gains this year.
"The gold price is one of the most reliable inflation gauges. It peaked in August 2020 at $2,000.75, and has fallen about 15% since then. Lumber prices have fallen more than 60%, copper has dropped -30%, iron ore 60%, DRAM has -46% and crude oil has dropped -35%," Wood explained.
"Further downstream retailers appear to be swimming in inventories that they could be forced aggressively to discount to clear shelves for holiday merchandise. "The surprise could be deflation of the CPI-PCE deflator by the year-end," said the executive. "Inflation is becoming deflation in the pipeline."
Musk stated in August that inflation had peaked and would "drop rapidly". He also predicted that there will be a recession that lasts about 18 months.
Are you in agreement with Elon Musk's view that a significant Fed rate increase could lead to deflation Comment below to let us know your thoughts.
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By: Kevin Helms
Title: Tesla CEO Elon Musk Warns a Major Fed Rate Hike Risks Deflation
Sourced From: news.bitcoin.com/tesla-ceo-elon-musk-warns-a-major-fed-rate-hike-risks-deflation/
Published Date: Mon, 12 Sep 2022 01:30:47 +0000
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