Despite the slowing in the economy and the rising unemployment rate, the Fed is still maintaining its hawkish posture. Elon Musk's deflationary prediction, though, may come true due to its strong posture. Neel Kashkari, president of the Minnesota Fed, finally acknowledges that the central bank might overshoot.
which in turn affects how the markets move.
Despite the slowing in the economy and the rising unemployment rate, the Fed is still maintaining its hawkish posture. Elon Musk's deflationary prediction, though, may come true due to its strong posture. Neel Kashkari, president of the Minnesota Fed, finally acknowledges that the central bank might overshoot.
Elon Musk, the CEO of Tesla and SpaceX, issued a grim warning to the Fed. He claimed that a further large rate hike by the Fed and its hawkish posture could cause deflation. Deflation might occur if the Fed overshoots, according to Cathie Woods of Ark Investments.
Recession vs. Deflation
The hawkish attitude of the Fed has had several unintended consequences. Initial unemployment claims show a rise in unemployment. In a similar vein, the World Bank has cautioned that the Fed's quantitative tightening will cause a recession in 2023. Similar to this, the UN warns that a recession is on the horizon if central banks do not change their aggressive posture.
Elon Musk, though, thinks that deflation is the most likely result.
A recession occurs when a country's overall GDP declines for several quarters in a row. It frequently goes hand in hand with sluggish growth, little demand, and rising unemployment. Deflation, on the other side, is the term used to describe the gradual decline in the cost of particular goods and services. Due to reduced prices, deflation can boost the economy temporarily. Nevertheless, prolonged deflation can be harmful to investors and debtors.
Other Important Aspects of Kashkari's Speech
The Fed will probably maintain its aggressive posture despite the elevated risks. According to Kashkari, there is no proof that inflation has reached its high.
The market, however, is not pleased with Kashkari's remarks. Every significant Wall Street bank feels that inflation has peaked, according to prominent investor and influencer @zerohedge.
