- The Fed could crush the worth of the whole stock market, Elon Musk warned at Tesla’s fourth quarter earnings call.
- That is since the Fed’s rate hikes are discouraging investors from dipping into stocks, which spells trouble for firms.
- Musk has blamed the Fed for Tesla’s dismal performance in 2022, when the EV-maker lost $600 billion in market value.
Elon Musk is nervous the Federal Reserve could ravage the stock market by jacking up rates of interest too high.
The Tesla CEO delivered his concerns to investors on the electrical vehicle maker’s fourth-quarter earnings call on Wednesday.
“I believe the Fed must be very cautious about having a Fed rate that potentially exceeds 6%,” Musk said at Tesla’s fourth quarter earnings call, referring to the central bank’s aggressive fight against inflation.
Officials hiked rates of interest 425-basis-points last yr with a view to combat rising prices, a move that drove the S&P 500 to lose 20% while pushing bond yields higher. Musk said on the decision that he’s nervous that rates will soon exceed the typical return of the S&P 500 if the Fed pushes rates of interest past 6%.
“Why don’t you set your money in T-bills or [a] savings account essentially as an alternative of within the S&P 500, if the S&P 500 is variable and the bank rate of interest shouldn’t be?” he said. “The Fed is liable to crushing the worth of all equities. Quite a serious danger.”
Musk has been critical of the US central bank before, and previously blamed the Fed’s rate hikes for Tesla’s dismal performance in 2022, when the corporate’s stock fell 65% and lost $600 billion in market value. High rates of interest could also push the economy right into a recession, Musk told his Twitter followers, and he urged central bankers to chop rates “immediately” in late 2022, or risk a severe downturn.
Other market commentators have warned continued rate increases may lead to a recession and potential crash within the stock market. Bank of America predicted a recession to hit the economy in 2023, which could send stocks spiraling down 24%, the bank warned.
The Fed funds rate is currently 4.25%-4.5%, the very best level since 2008. Markets expect two more 25-basis-point hikes from the central bank in February and March before pausing, which might raise the goal to 4.75%-5%.