(Business Insider) - Jerome Powell and the Fed's "band of lunatics" are getting inflation all wrong, and their actions will break trust in capitalism, billionaire investor Barry Sternlicht said in an interview with Fortune.
- He criticized the Fed's delayed response on inflation and for reacting to lagging indicators.
Sternlicht has previously blasted the Fed's delayed response to inflation, noting that the central bank's aggressive rate hikes were draining markets of liquidity and crushing gains for most investors. Fed policy has been fueled by inflation reaching a 41-year record this summer, prompting the central bank to "play catch up" and rapidly hike rates.
But that's raising the odds of a recession, experts have warned, particularly since the Fed is basing policy moves on statistics like Consumer Price Index data, which lags behind real time inflation on the ground, critics say.
Sternlicht pointed to some inflation-leading indicators, such as home prices and commodities prices, which have been falling in recent months. That suggests central bankers could be making a policy mistake to raise rates so aggressively, especially with the market widely expecting another 75 basis point hike in November.
"Maybe they're not smart enough to understand the impact of their actions. This is kind of like, and I'm not kidding here, the inmates running the asylum. I think they're just wrong," he said, slamming the Fed's inflation response an interview with Fortune on Friday.
He also warned that the Fed's potential policy error could destroy trust in capitalism, leading to social upheaval as the economy potentially tips into a recession.
"So the rich guy who loses 30%, he's still rich, right? But the poor guy who's working in an hourly job that loses that job, he's going to say: "Capitalism is broken, it didn't work for me. I lost my job. And this whole system has to go out the door.
"You're going to have social unrest ... And it's just because of Jay Powell and his band of lunatics," he added.
Sternlicht's warning echoes those of other experts, who have noted signs of strain in the financial system and flagged a coming economic crisis. Famed economist Mohamed El-Erian pointed to signs of dysfunction in US Treasuries that could spread to other sectors of the financial system, and "Dr. Doom" Nouriel Roubini warned that the US could enter a nightmare scenario of high debt and stagflation, which could tank the stock market by 40%.
By Jennifer Sor
October 27, 2022
