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US Economy Headed Towards Deflation

US Economy Headed Towards Deflation

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Tesla and SpaceX CEO Elon Musk has warned the US economy. Musk warns that another big increase in the federal reserve will lead to deflation. Musk’s warning comes as the Fed is expected to pursue another rate hike at the September FOMC meeting.

Musk is not the main figure giving the doom and gloom scenario to the US economy. The famous investor and founder of Scion Asset Management, Michael Burry, predicted a 2008-level financial crisis in the United States.

At the same time, economist Peter Schiff warns hyperinflation. He believes that the Fed will quickly turn to quantitative easing, which will cause steep inflation in the economy.

Violating Elon Musk’s Deflation Warning

Elon Musk believes that the central bank’s second rate hike will lead to deflation. Deflation is a decrease in the prices of goods and services. Deflation can be caused by many factors, such as higher productivity, weakened demand, or a contraction in the country’s money supply.

According to Musk, the current risk of deflation is due to the contraction of the money supply, as the Fed has engaged in qualitative tightening to fight against accelerating inflation. Fed Chairman Jerome Powell already promised pain for households and businesses. He also revealed that the Fed is trying to increase the strength of the dollar to help consumers fight inflation.

Deflation can be good news for consumers, who now have more purchasing power with the same currency. However, if the phenomenon continues for a longer period of time, it can lead to a shrinking of the economy.

The Fed’s Next Rate Hike

The Fed’s next interest rate hike will be decided on September 21, 2022. Currently, the CME fed Watch tool shows a 91% probability of a 75 basis point increase. Goldman Sachs also changed its forecast from a 50 bps increase to a 75 bps increase.

The CPI data on September 13 will also have a significant impact on the decision.

Nidhish is a technology lover whose goal is to find elegant technical solutions to solve society’s biggest problems. He is a firm believer in decentralization and wants to work on the mainstream adoption of Blockchain. He also plays almost all popular sports and loves to discuss a wide range of topics.

The presented content may contain the author’s personal opinion and is subject to the market situation. Do market research before investing in cryptocurrencies. Neither the author nor the publication is responsible for your personal financial loss.



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