- The Fed could crush the value of the entire stock market, Elon Musk warned at Tesla’s fourth quarter earnings call.
- That’s because the Fed’s rate hikes are discouraging investors from dipping into stocks, which spells trouble for firms.
- Musk has blamed the Fed for Tesla’s dismal performance in 2022, when the EV-maker lost $600 billion in market value.
Elon Musk is worried the Federal Reserve could ravage the stock market by jacking up interest rates too high.
The Tesla CEO delivered his concerns to investors on the electric vehicle maker’s fourth-quarter earnings call on Wednesday.
“I think the Fed needs to be very cautious about having a Fed rate that potentially exceeds 6%,” Musk said at Tesla’s fourth quarter earnings call, referring to the central bank’s aggressive fight against inflation.
Officials hiked interest rates 425-basis-points last year in order to combat rising prices, a move that drove the S&P 500 to lose 20% while pushing bond yields higher. Musk said on the call that he’s worried that rates will soon exceed the average return of the S&P 500 if the Fed pushes interest rates past 6%.
“Why don’t you put your money in T-bills or [a] savings account essentially instead of in the S&P 500, if the S&P 500 is variable and the bank interest rate is not?” he said. “The Fed is at risk of crushing the value of all equities. Quite a serious danger.”
Musk has been critical of the US central bank before, and previously blamed the Fed’s rate hikes for Tesla’s dismal performance in 2022, when the company’s stock fell 65% and lost $600 billion in market value. High interest rates could also push the economy into a recession, Musk told his Twitter followers, and he urged central bankers to cut rates “immediately” in late 2022, or risk a severe downturn.
Other market commentators have warned continued rate increases could lead to a recession and potential crash in the stock market. Bank of America predicted a recession to hit the economy in 2023, which could send stocks spiraling down 24%, the bank warned.
The Fed funds rate is currently 4.25%-4.5%, the highest level since 2008. Markets are expecting two more 25-basis-point hikes from the central bank in February and March before pausing, which would raise the target to 4.75%-5%.