Tesla and SpaceX CEO Elon Musk has a dire warning for the US economy. Musk warns that another big Fed hike will lead to deflation. Musk’s warning comes as the Fed is expected to deliver another jumbo rate hike at the September FOMC meeting.
Musk isn’t the main character to paint a doomsday scenario for the US economy. Famed investor and founder of Scion Asset Management, Michael Burry, predicted an economic crisis in the US at 2008 levels.
Meanwhile, economist Peter Schiff warns of hyperinflation. He believes the Fed will quickly move to quantitative easing, which will lead to rising inflation in the economy.
Breakdown of Elon Musk’s deflation warning
Elon Musk believes another rate hike by the Fed will lead to deflation. Deflation is the fall in the price of goods and services. Deflation can be caused by a variety of factors, such as: B. higher productivity, lower demand or shrinking of a country’s money supply.
According to Musk, the current risk of deflation comes from the contraction in the money supply as the Fed conducts qualitative tightening to combat rising inflation. Fed Chair Jerome Powell has already promised pain for households and companies. He also revealed that the Fed will seek to add to 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 currency. However, if the phenomenon persists for a long period of time, it can cause the economy to contract.
The Fed’s next rate hike
The next rate hike by the Fed will be decided on September 21, 2022. Currently, the CME Fed Watch tool shows a 91% probability of a 75 basis point hike. Goldman Sachs also changed its forecast from a 50 basis point increase to a 75 basis point increase.
The CPI data on September 13th will also have a big influence on the decision.
Nidhish is a technology enthusiast whose goal is to find elegant technical solutions to solve some of society’s biggest problems. He is a strong believer in decentralization and wants to work on mainstream adoption of blockchain. He is also a huge fan of almost every popular sport and loves to chat about a variety of topics.
The content presented may contain the personal opinion of the author and is subject to market conditions. Do your market research before investing in cryptocurrencies. The author or the publication assumes no responsibility for your personal financial loss.
Comments are closed.