Barry Sternlicht, the billionaire CEO of Starwood Capital Group, a private investment firm, has not criticized the Federal Reserve this year.
In September, Sternlicht said the Fed was using “old data” to attack the economy with unnecessary rate hikes. And this month he argued that the economy is “collapsing hard” as borrowing costs soar, meaning a recession is now all but inevitable.
But in an interview with wealth this week the gloves of Sternlicht are completely off.
The billionaire investor said if the Fed continues to hike rates, as it has done five times this year, the impact will be so destructive that it threatens the entire capitalist system.
“So the rich guy who loses 30% is still rich, right? But the poor guy who works an hourly job and loses that job will say, “Capitalism is broken, it didn’t work for me. i lost my job And this whole system has to get out the door,’” Sternlicht said Wealth.
“You will have social unrest,” he added. “And it’s all because of Jay Powell and his merry band of lunatics.”
Sternlicht isn’t the only one worried about rising interest rates potentially triggering a recession. Economist Steve Hanke tells wealth The Fed was “incompetent” and said we could be headed for a period of stagflation or recession. And Mohamed El-Erian, the president of Queens’ College, Cambridge, has repeatedly said that the Fed was too slow to respond to inflation last year. Earlier this month he added that the risk of a recession is now “uncomfortably high”.
For investors, higher interest rates also weigh on stocks, meaning the next few years likely won’t be as benign as the 2020 and 2021 bull market.
Sternlicht believes the Fed is basing its decision to raise rates on lagged inflation data, when instead it should be looking at “real-time” stats and talking to executives on the ground.
The billionaire, who founded Starwood Property Trust, which owns about 250,000 residential properties nationwide, says rents are “slowing down” across the board, but the Consumer Price Index (CPI) is still accounting for rent increases that happened over six months ago. give the Fed a misleading picture of this inflationary state of the economy.
Sternlicht also points to falling commodity prices as evidence that inflation is cooling. The CRB commodities index, a broad measure of global commodity prices, is down 20% from its record high in July.
The investor added that he believes the Fed missed its chance to stamp out inflation in 2021 and is now trying to erase past mistakes. But he stressed that two mistakes don’t make a right.
“They missed their moment during the crazy casino of 2021 when Gamestop was $350 per share and the crypto world was worth $3 trillion,” he said. “It’s too late to fix it now.”
Sternlicht believes the Fed should pause its rate hikes and wait for the impact to play out on the economy before deciding what to do next.
When asked why he thinks the Fed isn’t looking at real-time data anymore and seems laser-focused on rate hikes, Sternlicht gave a pointed answer.
“I think maybe they’re just not up to the task,” he said. “Perhaps they are not smart enough to understand the implications of their actions. It’s like, and I’m not kidding, the inmates who run the facility. I think they are just wrong.”
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