Billionaire investor Barry Sternlicht says Jerome Powell and ‘his merry band of lunatics’ are destroying faith in capitalism and leading us toward ‘social unrest’

Barry Sternlicht, the billionaire CEO of Starwood Capital Group, a private investment firm, has cut corners when it comes to criticizing the Federal Reserve this year.

In September, Sternlicht said the Fed was using “old data” to attack the economy with unnecessary interest rate hikes. And this month, he argued that the economy is “crashing hard” as borrowing costs soar, meaning a recession is now almost inevitable.

But in an interview with Fortune this week, Sternlicht’s gloves fell off completely.

The billionaire investor said that if the Fed continues to raise interest rates, as it has done five times this year, the effects will be so destructive as to jeopardize the entire capitalist system.

“So the rich guy who loses 30%, he’s still rich, right? But the poor guy who’s working hourly who 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,’” Sternlicht said. Fortune.

“You’re going to have social unrest,” he added. “And it’s only because of Jay Powell and his merry band of lunatics.”

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Sternlicht isn’t the only one worried about rising interest rates that could trigger a recession. Economist Steve Hanke said Fortune the Fed was “incompetent” and said we could be heading for a period of stagflation or recession. And Mohamed El-Erian, president of Queens’ College in Cambridge, has repeatedly said the Fed was too slow to respond to inflation last year. Earlier this month, he added that, as a result, the risk of a recession is now “uncomfortably high”.

For investors, higher interest rates weigh on equities too, meaning the next few years are unlikely to be as gentle as the 2020 and 2021 bull markets.

Sternlicht believes the Fed is basing its decision to raise interest rates on outdated inflation data, when instead it should be looking at “real-time” statistics and talking to executives on the ground.

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The billionaire, who founded Starwood Property Trust, which owns about 250,000 residential properties across the country, says rents are “slowing down” across the board, but the consumer price index (CPI) is still factoring in price increases. of rents incurred more than six months ago. giving the Fed a misleading picture of this state of inflation in the economy.

Sternlicht also points to falling commodity prices as evidence that inflation is starting to cool. The CRB commodity index, a broad measure of global commodity prices, is down 20% from its July record.

The investor added that he believes the Fed has missed its chance to end inflation in 2021 and is now trying to make up for past mistakes. But he emphasized that two wrongs don’t make a right.

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“They missed the moment during the crazy casino of 2021 when Gamestop was at $350 a share and the crypto world was worth $3 trillion,” he said. “It’s too late to fix this now.”

Sternlicht believes the Fed should pause its rate hikes and wait for the effects to affect the economy before deciding what to do next.

When asked why he believes the Fed isn’t looking at more real-time data and seems focused on raising rates, Sternlicht gave a straight answer.

“I think maybe they’re not up to the task,” he said. “Perhaps they are not smart enough to understand the impact of their actions. This is like, and I’m not kidding here, the inmates who run the asylum. I think they are just wrong.”

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