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Elon Musk Says Interest Hike by Fed Risks of Deflation

Elon Musk Says Interest Hike by Fed Risks of Deflation

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  • The Federal Reserve Board will decide on the next hike on September 21, 2022.
  • Economist Peter Schiff warns of impending hyperinflation.

Tesla and SpaceX CEO Elon Musk has issued a dire warning to the US economy. Musk argues that deflation will occur if the Federal Reserve raises interest rates significantly again. Musk’s warning comes as market watchers await a massive rate hike by the Federal Reserve at the September FOMC meeting.

And Musk isn’t the first prominent figure to paint a bleak picture of the future of the U.S. economy. Michael Burry, the founder of Scion Asset Management and a well-known investor, predicted a financial collapse similar to the 2008 crash.

A recession on the cards?

But economist Peter Schiff warns of looming hyperinflation. According to him, the Federal Reserve will quickly move to quantitative easing, which will lead to skyrocketing inflation.

For Elon Musk, if the Fed raises rates again, the result will be deflation. When the general price level falls, it is called deflation. Deflation can come from a variety of sources, including an increase in productivity and/or a decrease in demand or a decrease in a country’s money supply.

When money disappears, customers benefit from deflation. On the other hand, if this phenomenon continues for a considerable period of time, it can cause the economy to shrink.

On September 21, 2022, the Federal Reserve Board will decide whether or not to raise interest rates. The CME Fed Watch tool now indicates a 91 percent probability of a 75 basis point hike. Even Goldman Sachs revised its forecast upwards from 50 bps to 75 bps. A significant factor in the decision is the consumer price index data to be announced on September 13.

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