Tesla boss Elon Musk opines that the Fed’s attempts to stem inflation may inadvertently induce a full-blown recession.

Elon Musk believes that the Federal Reserve must cut interest rates immediately or risk incurring a severe recession. The outspoken Tesla CEO made his opinion known in an early tweet Wednesday, which read:

“Trend is concerning. Fed needs to cut interest rates immediately. They are massively amplifying the probability of a severe recession.”

According to Musk, the Fed’s attempt to rein in runaway inflation could worsen the economic situation. As it stands, the prices have skyrocketed, and several households across the US are feeling the crunch. Energy prices are hovering at record-high levels, and the tech space and crypto industry are wallowing in significant devaluation.

Musk has warned of an impending recession before. On October 24th, the brash billionaire estimated a global recession could last until the spring of 2024. Although Musk admitted he was “just guessing,” his prediction came amid other gloomy economic forecasts from several business leaders. Some of these leaders were Amazon CEO Jeff Bezos, JP Morgan CEO Jamie Dimon, and Goldman Sachs CEO David Solomon.

Latest Elon Musk Recession Warning Sparks Twitter Debate

The latest remarks by Elon Musk on a likely recession comes in an exchange with Tesmanian co-founder Vincent Yu. Like Musk, the Tesmanian co-founder had earlier expressed concern about the economy’s health and forewarned a recession next year. The Twitter exchange between Musk and Yu sparked participation from several other users who also chimed in. While a few seemed to side with the Fed’s position on interest rates, others frowned on hiking rates to stem inflation. Furthermore, a small number of Twitter users expressed ambivalence at the Fed’s stance. For example, a user with the handle @CricketSurfing stated:

“I don’t know where the sweet spot is in terms of interest rates, but the goal should be to allow the M2 money supply to grow at about the rate of GDP. Right now, the Fed is *shrinking* M2. They have slammed on the brakes, when they should have eased off the accelerator.”

Sven Henrich Also Chimes In

Also notable in the thread on interest rates is input from NorthmanTrader founder Sven Henrich. According to Henrich, the Fed’s actions on perceived inflationary pressure were overdue. As a result, the US apex bank has tried to make up for its decisive delay amid the aggressive tightening of a record-high debt construct. However, Henrich lamented that the Fed is implementing its strategy without “accounting for the lag effects of these rate hikes”. The NorthmanTrader concluded by predicting that the Fed would realize the extent of the damage of its decision too late.

Like Yu, Henrich’s assessment of the Fed decision drew an affirmative response from Musk.

Henrich also slammed the Fed further by stating that the central bank continues to project positive GDP growth for 2023. He reasoned that such misplaced optimism comes amid the obvious signs but does not appear surprised by this. According to Henrich, the Fed displayed the same misplaced GDP optimism in 2008 en route to the economic meltdown of ’09. Henrich concludes his criticism of the Fed by saying:

“As always, they will panic cut rates once the recession impact is here & then blame unforeseen factors.”

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Tolu Ajiboye

Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge.
When he’s not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.