Elon Musk Says Fed Must Cut Rates ‘Immediately’ to Avoid ‘Severe’ Recession

Elon Musk, founder of SpaceX, speaks during the Satellite 2020 at the Washington Convention Center in Washington, on Mar. 9, 2020. Brendan Smialowski/AFP via Getty Images

Industrialist Elon Musk said Wednesday that instead of further tightening monetary settings, the Federal Reserve should “immediately” lower interest rates or risk a “severe recession” in the U.S. economy.

Musk made the remarks in a post on Twitter, responding to a comment made by Tesmanian co-founder Vincent Yu, who predicted a “real economic recession” next year.

In the face of deteriorating economic indicators, analysts have been debating whether the U.S. economy will tip into a recession and if the contraction will be mild or severe.

“Trend is concerning. Fed needs to cut interest rates immediately,” Musk said in his post. “They are massively amplifying the probability of a severe recession.”

His remarks came on the same day that the ADP jobs report showed that U.S. private sector employers added a paltry 174,000 positions in November, far less than the market forecast of 200,000 and lower than last month’s 239,000.

The lackluster labor market data suggest the Fed’s aggressive rate hikes are having an impact. Caught behind the curve on soaring inflation that Fed officials initially insisted would be a short-term spike, the U.S. central bank has rushed to tighten monetary settings to quell price pressures.

While the impact on inflation has so far been limited, it appears that by sending borrowing costs higher and denting demand, the Fed’s rate hikes are at least serving to loosen the drum-tight labor market.

Fed Chair Jerome Powell, who is scheduled to deliver a speech later on Wednesday and provide investors with clues about the central bank’s policy path, has said he wants to see the number of job openings more closely aligned with the number of unemployed persons in the United States.

There were 10.7 million job openings at the end of September, according to the Bureau of Labor Statistics, compared to around 5.8 million unemployed.

Fed Wants ‘Softer’ Labor Market

Fed officials have spoken of the need for a tightening labor market in order to ease inflation pressures, and they have acknowledged that pushing rates higher could mean higher rates of joblessness.

Powell said during a press conference in September (pdf) that rate hikes could “give rise to increases in unemployment” and that “we need to have softer labor market conditions.”

While Powell added that Fed policymakers “certainly haven’t given up the idea that we can have a relatively modest increase in unemployment,” he said they’re determined to crush inflation and bring it back down to around the Fed’s target of 2 percent.

“We need to complete this task,” he said, adding that it won’t be “painless.”

After the Fed delivered a series of 75-basis-point rate hikes, hiking rates at its fastest pace since the 1980s, markets are now pricing in a smaller 50 basis-point rate hike in December and a terminal rate of 4.97 percent.

Some Wall Street analysts believe markets are undershooting how high the Fed will hike before it hits pause.

James Bullard, president of the Federal Reserve Bank of St. Louis, said in a recent speech in Louisville, Kentucky, that he thinks rates should go up to a range of 5.0–5.25 percent, though he called this a “minimum level” needed to dampen inflation.

Bullard also shared a presentation that featured charts indicating that rates might need to go as high as 7 percent for monetary policy to be “sufficiently restrictive” to bring down “unacceptably high” inflation.