Barry Sternlicht on Fed’s price hike hurting the economy

Starwood’s Barry Sternlicht says the Fed’s most up-to-date price hike lead to additional financial turmoil.Lauren Justice—Bloomberg/Getty Photos

Starwood Capital’s CEO Barry Sternlicht thinks the Fed produced the banking crisis by itself, and that its interest price hikes will hurt the economy. 

“Obviously he [Fed Chair Jerome Powell] didn’t will need to do what he did,” he told CNBC’s Squawk Box on Thursday about the most up-to-date interest price enhance this week, the ninth considering that 2022.

Sternlicht, whose hedge fund manages more than $one hundred billion, stated that Powell’s argument that the economy will not slow down due to the existing banking crisis was flawed. 

“He [Powell] is working with a steamroller to get the price tag of milk down two cents, to kill a tiny fly,” Sternlicht stated about Fed’s fight against inflation (the fly) when ignoring its effect on banks. 

He complained about weak regulations that permitted banks to seem stronger than they had been and an “irresponsible” lack of preparation for a downturn. Regulators also failed to conduct tension tests, which involve assessing regardless of whether banks have sufficient capital to make it by means of an unexpected crisis, in the occasion of larger interest prices.

“You do not have to see the vehicle hit the wall to know it is going eight,000 miles an hour and it will hit the wall,” Sternlicht stated about the most up-to-date price hikes and their prospective to hurt banks, specifically regional banks that are currently facing industry turmoil.

“The economy will have a challenging landing,” he added, referring to the economy falling into recession due to the Fed’s interest price hikes.

In February, the inflation price was six% year-more than-year, down from six.four% in January and far under the 4-decade peak of 9.1% final June. 

“There’s excellent inflation and negative inflation. Very good inflation is wage inflation—we ought to be obtaining parties,” Sternlicht stated. “He [Powell] is limiting inflation to two%…that is not what we ought to want.”

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Starwood Capital’s CEO Barry Sternlicht thinks the Fed produced the banking crisis by itself, and that its interest price hikes will hurt the economy. 

“Obviously he [Fed Chair Jerome Powell] didn’t will need to do what he did,” he told CNBC’s Squawk Box on Thursday about the most up-to-date interest price enhance this week, the ninth considering that 2022.

Sternlicht, whose hedge fund manages more than $one hundred billion, stated that Powell’s argument that the economy will not slow down due to the existing banking crisis was flawed. 

“He [Powell] is working with a steamroller to get the price tag of milk down two cents, to kill a tiny fly,” Sternlicht stated about Fed’s fight against inflation (the fly) when ignoring its effect on banks. 

He complained about weak regulations that permitted banks to seem stronger than they had been and an “irresponsible” lack of preparation for a downturn. Regulators also failed to conduct tension tests, which involve assessing regardless of whether banks have sufficient capital to make it by means of an unexpected crisis, in the occasion of larger interest prices.

“You do not have to see the vehicle hit the wall to know it is going eight,000 miles an hour and it will hit the wall,” Sternlicht stated about the most up-to-date price hikes and their prospective to hurt banks, specifically regional banks that are currently facing industry turmoil.

“The economy will have a challenging landing,” he added, referring to the economy falling into recession due to the Fed’s interest price hikes.

In February, the inflation price was six% year-more than-year, down from six.four% in January and far under the 4-decade peak of 9.1% final June. 

“There’s excellent inflation and negative inflation. Very good inflation is wage inflation—we ought to be obtaining parties,” Sternlicht stated. “He [Powell] is limiting inflation to two%…that is not what we ought to want.”

Turn up the critics

The billionaire investor has been vocal about wanting the Fed to quit price increases. In October, he blamed Powell’s persistent price hikes for threatening capitalism and potentially major to social unrest. The following month, Sternlicht stated the interest price hikes are “self-inflicted suicide” due to the fact they shrink financial development without the need of straight fighting inflation, which has been on a downward trend for about eight months straight. 

Sternlicht is not alone in his criticism of the Fed, although. In a tweet Wednesday, Moody’s chief economist Mark Zandi known as the price hikes “disappointing,” adding that the quarter point hike that Powell announced this week is not sufficient to “break points,” but shows how the Fed is blinded by its inflation fight. Zandi’s assessment was that the Fed kept prices “too low for as well long” as the economy started to recover from the pandemic, forcing it to play catch up to the fast price tag increases across the economy. 

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The Fed got it incorrect when they kept prices as well low as well extended coming out of the pandemic. It is unfair to be as well crucial offered the uncertainties produced by the pandemic. And then there is the Russian invasion. But they now danger raising prices as well higher as well quick. That will be on them.

— Mark Zandi (@Markzandi) March 22, 2023

The current price hike was anticipated. Earlier this month, Powell had indicated the possibility of price increases for the rest of 2023. But that was just before the Silicon Valley Bank’s meltdown. Earlier this month, federal regulators seized the bank, an essential lender in the tech and venture capital circles. It led to “sheer panic” and the subsequent collapse of crypto-focused lender, Signature Bank. 

Banks like Goldman Sachs believed the banking rout would force the Fed to halt interest price increases briefly, but that didn’t finish up taking place. And now, it is unclear regardless of whether the Fed will quit the price hikes anytime quickly.