Billionaire Investor Says Fed Is Leading Us Towards ‘Social Unrest’

Barry Sternlicht, CEO of Starwood Capital Group, hasn't held back in his criticism of the Fed this year.

Unnecessary Rate Hikes

In September, Sternlicht claimed that the Fed has been using “old data” to justify hiking interest rates. This month, he argued that the economy is “breaking hard” as the borrowing costs have soared, implying that a recession is inevitable at this point.

In an interview this week with Fortune, he pulled no punches with his criticism. The investor stated that if the Fed raises interest rates again for the fifth time this year, the effects could potentially put our entire capitalist system at risk.

“So the rich guy who loses 30%, he’s still rich, right? But the poor guy who’s working in an hourly job that 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 told Fortune.

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

Not the Only One

Sternlicht isn't the only one concerned about rising interest rates setting off a recession. Economist Steve Hanke told Fortune that the Fed is “incompetent” and that we are surely headed for a period of stagflation or recession.

Mohamed El-Erian, president of Queens' College at Cambridge, has repeatedly stated that the Fed has been too slow in its response to inflation this year. He added earlier this month that because of the slow response, the risk of recession is now “uncomfortably high.”

On the investors' side, higher interest rates affect stocks, which means that the next few years will not be as kind or as lucrative as the bull market of 2020 and 2021.

Lagging Data

Sternlicht believes that the Fed is basing its decision to continue raising interest rates on “lagging inflation data” when it should instead focus on real-time statistics and taking time to talk to executives on the ground.

Sternlicht founded Starwood Property Trust and now owns around 250,000 residential properties nationwide. He says that rents are “slowing” across the country, but the consumer price index (CPI) is still taking into consideration the rent price hikes that happened more than six months ago, which gives the Fed a misleading reference picture about the state of inflation in the economy.

Sternlicht also drew attention to the fact that falling commodity prices are also evidence that inflation is beginning to cool. The CRB commodity index, a broad measure of global commodity prices, has called 20% from its peak in July.

Sternlicht believes that the Fed missed its best chance to stamp out inflation in 2021 and is now trying to make up for the error. Sternlicht made sure to emphasize that two wrongs do not make a right.

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

This article was produced and syndicated by Wealth of Geeks.