The US Federal Open Market Committee begins a two-day monetary policy meeting on Tuesday. forward, Tesla Inc. TSLA Director Elon Musk took to Twitter to comment on inflation and interest rates.
What Happened: Cathie Wood of Ark Invest tweeted last week that the Biden administration is sticking to what prevailed in the 1970s — when the Fed was under pressure Larry Summers a relentless fight against inflation had begun by raising the key rate. Inflation had then raged unchecked for 15 years before the Fed stepped in, she said.
Wood warned of impending deflation by pointing to sharp declines in prices of several items from pre-COVID levels.
Musk responds: In response to the money manager, Musk tweeted, “Yes, the fundamental flaw is reasoning by analogy, rather than first principles.”
Yes, the fundamental flaw is reasoning by analogy, rather than first principles
— Elon Musk (@elonmusk) September 19, 2022
One of Musk’s followers chimed in by share an image of past inflation trends and suggested that the current scenario is more like 1949 when inflation peaked at 10% and then quickly returned to -2.5% within 12 months.
“Or [Federal Reserve] wait a month or run, doesn’t matter. Deflation hits them on the chin because they’re using old data,” he said.
While tagging Twitter user Wood and the Federal Reserve, Musk noted that there was too much latency in the Fed’s decisions. “Problematic in a rapidly changing world,” he added.
Also see: Dow Jones Technical Analysis Ahead of FOMC
Responding to Musk’s View of the Economy and Monetary Policy, Crypto YouTuber Matt Wallace revived calls to make Musk the president. “Elon Musk for President,” he tweeted.
Elon Musk for President
— Matt Wallace (@MattWallace888) September 19, 2022
Future Funds Gary Black echoed a similar sentiment to that of Musk and Wood. “The Fed is going the wrong way, aggressively raising interest rates to combat supply-driven inflation caused by Covid, which has already peaked,” he said.
“The Fed is making the mirror-image mistake it made in 2021, which kept interest rates low for too long, by raising interest rates too quickly.”
Benzinga’s opinion: The argument that the Fed may be trading on old data is not entirely unfounded. Producer price inflation in August showed a second consecutive month of decline and the slowest pace of annual increase amid the sharp decline in energy prices.
Inflation expectations are also declining, according to preliminary results from the University of Michigan consumer confidence survey. One-year inflation and five-year inflation expectations came in at 4.6% and 2.8% respectively, both falling to their lowest level in a year.
Wood herself has in the recent past blamed the Fed for worrying more about her legacy than the economy.
The Fed may be inspired to react too quickly to inflation as economic indicators such as employment show strong evidence. Credit Suisse analysts see the Fed raising interest rates at least until early 2023 and consider 4.25%-4.50% as a final rate compared to prevailing rates of 2.25%-2.50%.