Teslas CEO Elon Musk repeatedly criticized the Fed’s rate hikes this week—saying artificial intelligence could do a better job managing the economy than Chair Jerome Powell.
- On Thursday, Elon Musk criticized the Fed’s decision to raise interest rates, tweeting, “Umm … the banks are melting,” in reference to the negative effect high-interest rates are having on the banking industry.
- Silicon Valley Bank experienced the second-largest bank history in U.S. history two weeks ago, in part due to treasuries being devalued by the Fed’s actions.
- Musk also tweeted that Fed Chair Jerome Powell could be replaced with ChatGPT and “couldn’t do worse.”
- He has gone as far as to suggest that Wednesday’s announcement should have reduced interest rates, saying on Monday, “Fed needs to drop the rate by at least 50 basis points on Wednesday.”
Why It’s Important
The Federal Reserve raised interest rates for the ninth consecutive time in 12 months on Wednesday.
Elon Musk has been a persistent critic of the Federal Reserve’s monetary tightening policies in recent months. As he tweeted in September, “a major Fed rate hike risks deflation.”
He joins other business leaders such as ARK Invest’s Cathie Wood and Moody’s Analytics’s Mark Zandi in criticizing the Fed for pushing its anti-inflationary measures too far, risking economic destruction and currency deflation.
“A major driver of depositor flight is people moving money from low-interest savings accounts to high-interest money market [treasury bill] accounts. This foolish rate hike will worsen depositor flight,” says Musk.
As we previously reported, the Fed remains in a difficult position. It had no choice but to take a risky position on Wednesday—choosing either to risk the integrity of the banking system or the integrity of the dollar. It chose the latter, signifying that the Fed is willing to fight inflation at the risk of further bank collapses.
“Events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes,” says Powell.
As Fortune notes, Citigroup CEO Jane Fraser has taken the opposite approach to hikes and praised the Fed during a recent interview, saying, “This is not a credit crisis. This is a situation where it’s a few banks that have some problems, and it’s better to make sure that we nip that in the bud.”