The Federal Reserve’s aggressive rate-hike path — an attempt to curb the highest inflation in decades — will hurt the global economy if the central bank carries on, according to billionaire Barry Sternlicht.
“They will wreak incredible havoc if they continue with their action, and not just here, around the world,” the Starwood Capital Group chairman and CEO said Tuesday on CNBC’s “Squawk Box.” Instead, the Fed should slow down and take a closer look at economic data, he said.
The Federal Reserve has hiked interest rates three times in a row by 0.75 percentage points so far this year to quell high inflation. In addition, at its last meeting, it signaled that at least one more rate hike of 0.75 percentage points is on the cards this year. To date, the Fed has hiked rates by a total of 3 percentage points.
He pointed out that the Fed’s actions, which have boosted the US dollar, are already rattling global currency markets. Many currencies including the yen, euro and pound have depreciated against the dollar. These changes can shake world trade.
Sternlicht also sees the Fed misunderstanding the cause of high inflation, which has been attributed to massive financial stimulus packages issued as economies reopened from the coronavirus pandemic lockdowns.
“Now that we’re gaining momentum and people are finding jobs and wages are going up, they want to stomp on the whole thing and end the party,” he said.
But too much action is unlikely to be necessary — while US consumers are still spending, it’s inevitable that they will slow their purchases when stimulus funds run out. The data is already showing this in some areas – car sales have slipped, as have home sales, as interest rates rise. Additionally, the $36 trillion weakness in the stock market this year has also curbed purchasing power.
If the Fed tightens further, companies will delay hiring and investment decisions, capital spending will slow and tech stocks — already hit by higher interest rates — will continue to struggle, he said.
“The Fed needs to stop and just look at the data,” Sternlicht said, adding that the central bank needs to focus on the real economy. “The stock market and bond market move to the Fed overnight, but the real economy takes time.”
He said if the war in Ukraine is settled faster than expected, it will be positive for the global economy, as will China’s eventual reopening.
Correction: A previous headline misrepresented the quote from Barry Sternlicht. He said the Federal Reserve will “create incredible disasters if they continue their actions.”