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The U.S. Federal Reserve cast a pall on the financial markets by announcing a third straight 75-basis-point hike in the fed funds rate last week.
The U.S. central bank received flak from several quarters, and Wharton Professor of Finance Jeremy Siegel was particularly critical of the Fed in a recent CNBC interview. On Saturday, Tesla, Inc. TSLA CEO Elon Musk endorsed the professor’s view.
What Happened: Siegel came down heavily on the Fed for not tightening monetary policy before inflation went out of control. Now, by tightening monetary policy aggressively, the central bank is making another mistake, he added.
“The last two years [are] one of the biggest policy mistakes in the 110-year history of the Fed, by staying so easy when everything was booming,” Siegel said.
To make his case, Siegel noted that when commodity prices were spiking, the Fed under Jerome Powell stood pat and now when the very same commodities and asset prices are on the way down, the central bank sees stubborn inflation that requires it to “stay tight all the way through 2023.”
He also sees a recession materializing, with the working- and middle-class Americans paying the price.
“I am very upset,” he said, adding, “It’s like a pendulum. They were way too easy through 2020 and 2021.” Now the Fed says, “We’re going to be real tough guys until we crush the economy,” he added.
“I mean, that is just to me absolutely, poor monetary policy would be an understatement.”
Musk Comments: Quote-tweeting the CNBC video, Musk said, “Siegel is obviously correct.”
Siegel is obviously correct
— Elon Musk (@elonmusk) September 24, 2022
Incidentally, ahead of the Fed’s September rate hike, the billionaire said there is too much latency in Fed decisions, adding that it is problematic in a “fast-changing world.”
He also previously commented on Ark Invest founder Cathie Wood’s tweet about the Fed relying on lagging indicators and taking cues from the situation that prevailed in the 1970s, when the central bank aggressively raised rates to ward off inflationary pressure that was entrenched for about 15 years.
“Yes, the fundamental error is reasoning by analogy, rather than first principles,” Musk said in reply.
Photo: Courtesy of Tesla Owners Club Belgium on flickr
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Image and article originally from www.benzinga.com. Read the original article here.