American billionaire and former Starwood Capital Group CEO Barry Sternlicht pointed out on Thursday (15th) that the inflation data that the Fed is concerned about is old data, and that a false and aggressive interest rate hike will collapse the real estate and the economy is on the verge of a severe recession.
The Federal Reserve has raised interest rates four times this year, and given that key inflation data has not slowed down, the outside world is widely expected to raise interest rates by another three yards next week. The US consumer price index (CPI) growth in August did not slow down, with an annual growth rate of 8.3%, lower than 8.5% in July and 9.1% in June, a 40-year high, higher than analysts’ expectations. The 6.3% y/y increase in core CPI also beat analysts’ expectations.
Former Starwood Capital Group CEO Barry Sternlicht, known as the hotel king, warned that the U.S. economy will teeter on the brink of a severe recession if the Federal Reserve does not stop raising interest rates.
The problem with the Fed, Sternlicht said, is that the data they’re referencing is so old that it distorts their understanding of what’s going on in the economy, and they’re hitting the economy with an unnecessary sledgehammer that they don’t need to.
Sternlicht said the Fed has started raising interest rates this year, and as supply chains recover and commodity prices cool, they have done most of the work to rein in inflation, as evidenced by the $7 trillion wiped off U.S. stocks.
What should the Fed do?
Sternlicht believes that Fed officials should get on the phone with Walmart (WHT-US) CEO Doug McMillon, call any real estate agent, and ask about apartment rents, which are now slowing, to be sure immediately degree of economic inflationary pressure.
And it’s not just the housing market slowing, Sternlicht said, that CEO confidence is lacking, mergers and acquisitions activity has fallen sharply, and initial public offerings (IPOs) around the world are winding down.
About 41 percent of Americans say they plan to cut back on spending this year during the holidays, while 20 percent say they will cut spending by more than 50 percent this year, according to a new Trustpilot survey.
Sternlicht said all aspects of the U.S. economy have slowed, consumer confidence is poor, and the problem is expected to surface by Christmas, which will eventually lead to major price cuts at major retailers across the country, and further interest rate hikes will not help.
All eyes are on the effect of Fed Chairman Powell’s aggressive interest rate hikes to curb inflation, following the example of former Chairman Paul Volcker.
Sternlicht said that the current background of the United States is very different from the Volcker era. When Volcker first took office in 1979, the U.S. Treasury borrowed $825 billion, but the current U.S. debt has reached $31 trillion. Raising interest rates not only affects consumption, but also would significantly increase federal interest payments, making it more difficult to pass spending plans.
In addition, Sternlicht stressed that not all inflation is bad inflation.
“The U.S. doesn’t need a 2 percent inflation target, we should want wages to go up, which will help solve America’s social problems, which is the trickle-down effect of low unemployment we’ve been waiting for,” he said. “The inflation target should come Between 3% and 4% is fine.”
“Trickle-down economics”, also known as trickle-down economics, is used to describe economic policies that reduce taxes for the rich and companies, and ultimately improve the lives of the poor in society. The rich get richer, and the poor also benefit.