Elon Musk Sees Deflation Coming If There Is Another Major Fed Rate Hike

Elon Musk has warned that another interest rate hike by the U.S. Federal Reserve could result in deflation hitting the economy.

A major Fed rate hike risks deflation

— Elon Musk (@elonmusk) September 9, 2022

Last year, Musk predicted that the U.S. would enter a recession.

If history is any guide, not many will make it past the next recession

— Elon Musk (@elonmusk) December 30, 2021

On Friday, Federal Reserve Governor Christopher Waller warned that he expects a "significant" interest rate increase later this month.

He mentioned that policymakers should stop guessing the future and instead stick to what the data is saying.

Waller later added that he expects interest rate increases to continue until at least "early next year" as the central bank works to get inflation closer to its 2% goal.

However, he said that the Fed's "policy path" would depend on the upcoming economic data. He hinted that he would support the 0.75-point move instead of a half-point increase.

Last week, Federal Reserve Chair Jerome Powell said policymakers will remain "strongly committed" to driving prices down to the 2% target "until the job is done." 

Also Read: Will Tesla EV Prices Rise With Raging Inflation? What Elon Musk Has To Say

Responding to Musk's tweet on deflation, Dogecoin (CRYPTO: DOGE) co-creator Billy Markus, who goes by the username Shibetoshi Nakamoto, shared a meme showing how Bitcoin (CRYPTO: BTC) maxis feel about potential deflation. 

bitcoin maxis be like pic.twitter.com/fRyMMPsQdB

— Shibetoshi Nakamoto (@BillyM2k) September 9, 2022

Fund manager Cathie Wood has said that the Fed should cease raising interest rates, that the economy is now seeing deflation rather than inflation and is in recession.

"The Fed seems to respond to covid-related supply shocks spanning 15 months the same way that former Fed Chairman Paul Volcker battled inflation that had been brewing and building for 15 years," the chief executive of Ark Investment Management tweeted.

The Fed is basing monetary policy decisions on lagging indicators: employment and core inflation. Leading inflation indicators like gold and copper are flagging the risk of deflation. Even the oil price has dropped more than 35% from its peak, erasing most of the gain this year. https://t.co/e45KJWrjOZ

— Cathie Wood (@CathieDWood) September 7, 2022

Photo: Created with an image from Steve Jurvetson on Flickr