Mohit Oberoi
Elon Musk tweeted that recession would be “greatly amplified” if the Fed raises rates again next week. He has been warning of a recession for quite some time now and even laid off some Tesla employees amid the economic slowdown.
The US Fed meeting is scheduled for December 13-14. Markets largely believe that the Fed would raise rates by 50 basis points at the meeting. The Fed raised rates by 75 basis points at each of the four preceding meetings. However, Fed chair Jerome Powell has now signaled that the FOMC would slow down the pace of hikes at the December meeting.
Meanwhile, it is not the first time that Musk, who acquired Twitter in October, has warned of an impending recession. He had previously predicted that a recession might last until the spring of 2024.
Notably, the US economy contracted in both the first and second quarters of 2022. While that would meet the widely accepted definition of a recession, the NBER (National Bureau of Economic Research), which calls out economic cycles in the US, uses a different yardstick.
Along with the GDP growth, it also looks at personal income and employment levels. The US job market is still strong and the unemployment rate is at 3.7%. The US job market has been reasonably strong and both October and November nonfarm payroll data surprised on the upside.
Elon Musk Warns of a Recession if Fed Hikes Rates
Meanwhile, Musk is not the only person warning of a recession if the Fed continues to raise rates. Cathie Wood of ARK Invest, who is among the most notable Tesla bulls has also faulted the Fed for its relentless rate hikes.
Amid sky-high inflation, WOOD believes that the US economy is headed for deflation. Bond guru Jeffrey Gundlach echoed her views and believes that bonds are an attractive investment option. Gundlach also said that the Fed is making the mistake of “overtightening.”
On multiple occasions, Powell has said that the rate hikes might lead to recession. He also however emphasized that the Fed is not trying to force a recession. However, he did talk about the “pain” of the rate hikes. While recession impacts most sectors of the economy, some of the investments are largely recession-proof.
Several Economists Warn of a Recession in the US
JP Morgan CEO Jamie Dimon has been warning of a recession for quite some time now. Dimon listed several headwinds including rising interest rates, high inflation, as well as the escalation in the Russia-Ukraine war.
He said, “These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now.”
During Tesla’s Q3 2022 earnings call, Musk said that China is already in a recession led by the crash in the country’s housing sector. Multiple reports have suggested that demand for Tesla cars has waned in China. Along with concerns over a demand slowdown, markets are apprehensive about Tesla due to Musk’s ownership of Twitter.
Michael Burry Sees the Economy Crashing
In the second quarter of 2022, Michael Burry sold all the holdings of his Scion Asset Management and added a small position in Geo Group stock. Burry has been warning of a stock market crash for quite some time now. He has also warned of a severe recession.
David Rosenberg and Leon Cooperman have also talked about the possibility of a recession. Paul Tudor Jones also said in October that the US economy is either in a recession or heading towards one.
Jeff Bezos is another business leader who sees a recession on the horizon. Amazon posted its Q3 2022 earnings in October and the tepid guidance stoked recession fears. Amazon stock has plummeted this year but most Wall Street analysts see it as a buy. We have a guide on how beginners can buy Amazon stock.
Several indicators including the yield curve inversion have been flashing red signals for a possible US recession next year.
Meanwhile, a recession would only add to the troubles for Musk and Tesla. The stock has been sliding amid multiple worries and a recession would only add to the pressure on the stock.
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This article was written for Business 2 Community by Mohit Oberoi.
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