For several months now, he has been warning of a deep recession, triggered by the Federal Reserve’s actions to fight inflation, which is at multi-decade highs.
Elon Musk, the billionaire businessman, believes that the US economy is slowing down and that the Federal Reserve continues to make things worse.
After leaving interest rates close to zero for most of the coronavirus pandemic, despite stimulus packages to help households and support the economy, the Federal Reserve has changed course in the face of an unprecedented rise in rates. The central bank raised interest rates during its last meeting, setting the reference rate between 5% and 5.25%.
For many experts, this monetary policy will undoubtedly have a negative impact on economic activity and the economy as a whole. The purchasing power of households is significantly affected, which reduces their expenditures. The cost of money or credit flick becomes prohibitively expensive, limiting households’ ability to borrow as they also face increased monthly payments on their existing loans. Companies, for their part, end up with unsold inventory and have to pay dearly for borrowing, in order to fund their projects. Basically, it’s a demonic circuit.
More price increases?
So many experts believe that the economy is already in recession or that the economic slowdown is accelerating, despite less worrisome economic data and data encouraging the Fed to continue its monetary policy as it is.
Such is the case with the latest labor market data. The US economy added much more new jobs than expected last month, but slowing wage growth and a higher rise in the headline unemployment rate suggest that the gains will likely not alter market expectations of a Fed rate hike.
The Labor Department’s Bureau of Labor Statistics (BLS) said on June 2 that 339,000 new jobs were created last month, the strongest increase since January and ahead of a consensus Wall Street forecast of 185,000. Private payrolls pegged at 283,000, the BLS said, as the unemployment rate jumped to 3.7% from 3.4%, the lowest level since 1969.
The BLS also revised its estimate for April up to 294,000 from its original estimate of 253,000 net profit, while raising its estimate for March to 217,000 from its previous estimate of 165,000.
Former US Treasury Secretary Larry Summers said that the report indicates that the Federal Reserve should raise interest rates in July, if it wants to maintain a steady rate of increases.
the Harvard economist said on Twitter June 2, referring to those urging pivot feeding. “The general trend of the data has been v. very much towards saying that the economy — at least for the time being — has a reasonable amount of strength in it.”
“If @federalreserve doesn’t raise rates in June, I think they have to be open to the possibility that they may have to raise interest rates by 50 basis points in July, if the economy continues to maintain its upturn, and if inflation numbers are strong.”
The Federal Reserve meets on June 14-15, followed by another Federal Open Market Committee (FOMC) on July 26-27.
“something does not add up”
Musk criticized Summers’ analysis, which for months called for the central bank to cut interest rates to avoid deflation.
“That would be crazy,” the tech billionaire said of Summers’ prediction.
CEO of Tesla (TSLA) – Get a free report, who is also the founder of SpaceX and owner of Twitter, also attacked the data that the Federal Reserve uses to determine its monetary policy. Thus, he tried to discredit the labor market figures.
“It becomes clear that the government reports fake numbers at first, then revises them in the following months when they think no one cares,” he posted June 3 on a Twitter account with which the tech mogul often exchanges.
In a video, Peter St-Onge, a researcher with the conservative Heritage Foundation, wondered if the employment figures were being manipulated, because he noticed big differences between the raw numbers and the revised data.
Musk shared this thinking and was even articulate.
Something doesn’t add up, said the king of techno.
Basically, the federal government may use economic data designed to steer the Fed’s monetary policy in a certain direction.
It should be noted that reviewing economic data is an old practice that all investors and stakeholders are accustomed to. Sometimes there are drastic changes between the first grade and the final review.