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Elon Musk has warned that the current turmoil in the banking sector proves that more interest rate hikes from the Federal Reserve will spark a severe recession. He claims that access to vast company data gives him more real-time economic insights. In general, Musk responded to United States Treasury Secretary Larry Summer’s economic outlook in a tweet on Sunday. Larry had predicted the economy faced a 70% possibility of tipping into a downturn.
The tech billionaire clarified that a mild recession was ongoing and further rate hikes would make it worsen. Thus, he particularly cited the turmoil facing the banking industry, citing the recent First Republic bank failure. It marked the most recent bank collapse since the Silicon Valley Bank collapse in March. Silicon Valley had encountered a bank run following high-interest rates on its bond portfolio. Besides, he mentioned the collapse of Credit Suisse.
According to him the recent bank failures signaled significant concerns that the Federal Reserve rate hikes had hurt the economy stemming. Meanwhile, he referred to the Silicon Valley Bank collapse and the UBS takeover of storied financial intuitions like Credit Suisse as an indicator of a mild recession. First Republic Bank had received $30 billion from 11 big US banks in rescue efforts. The Fed raised borrowing costs by 475 basis points in 12 months.
In simple terms, the Federal Reserve hoped that higher borrowing costs would tame inflation. But experts have warned that this move could easily worsen the economy into a severe recession. Musk has slammed record-high borrowing costs over 20 times within the past seven months. Generally, he explained that inflation was lower than Fed’s data indicates, claiming that the higher interest rates policy was foolish.
He claimed the Federal Reserve was responsible for Tesla's $600 billion market drop in 2022. According to him, his array of large companies' data worldwide gave him insight into the US economic situation. Overall, he tweeted that Twitter, Starlink, and Tesla together gave him more real-time data than anyone else on the global economy. But some financial analysts still believe that inflation is still a concern, so the Fed could not slow down on interest rate hikes.
Above all, markets now bet on an 89% probability that the central bank would raise interest rates by 25 basis points. This move would raise the Fed fund rate to 5.25% from 5%. The update comes after Jack Dorsey (the co-founder of Twitter) openly criticized Elon Musk regarding his leadership of the company. He claimed everything on Twitter was a brawl, and Musk’s social media posts were absurd.