The Billionaire tech tycoon worries that future inflation will be worse than it is now.
The CEO of electric vehicle manufacturer Tesla (TSLA) has been expressing his concerns about the future of the economy for the past few days as the Federal Reserve gets ready to boost interest rates once more in an effort to combat the biggest inflation in 40 years.
On September 20–21, the central bank will host a two-day meeting to discuss the economy. A rate increase of at least 75 basis points, or 0.75%, is anticipated from the institution at the conclusion of this meeting, according to economists, the business community, and the markets, given the most recent data showing that the price increase has been accelerating.
Some analysts, including former Treasury Secretary Larry Summers, even support a rate increase of about 100 basis points or 1%.
Summers stated on September 13 that a move of 75 basis points in September “has seemed self-clear to me for some time now.” And if I had to pick between a change of 100 basis points in September and a move of 50 basis points, I would go with the move of 100 basis points to increase credibility.
The world’s richest man, Elon Musk, who is the CEO of Tesla, SpaceX, The Boring Company, and Neuralink, is highly critical of this monetary policy, which currently relies solely on fast rate increases to prevent a so-called “hard landing” of the economy or a recession.
The tech tycoon thinks that a big rate increase by the Fed of 0.75 percent will certainly result in the equally alarming situation of deflation.
Elon Musk tweeted on September 9 that “a significant Fed rate hike risks deflation.”
What is Deflation?
The opposite of inflation is deflation. A consistent decline in the level of prices overall serves as its defining feature. According to analysts, it can tempt people to put off purchases while they wait for additional price drops. When consumption falls overall, the results could be disastrous. Then, businesses who are unable to sell their goods decrease output and investment.
Deflation, above all, has the potential to worsen borrowers‘ financial circumstances. This is due to the fact that loan repayments are typically not indexed to inflation, which raises the actual, or inflation-adjusted, cost of debt.