Elon Musk Says 'Foolish' Fed Rate Hike Will 'Worsen Depositor Flight'

Tesla CEO Elon Musk criticized the Federal Reserve's rate hike, saying it will accentuate depositor flight which is a major headache for policymakers and the banking industry in the wake of the ongoing crisis.

"A major driver of depositor flight is people moving money from low-interest savings accounts to high-interest money market (Treasury Bill) accounts. This foolish rate hike will worsen depositor flight," Musk tweeted.

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Musk reacted to Dogecoin DOGE/USD co-creator Billy Markus‘ sarcastic take on the Federal Reserve: "there's literally only one bank and it has infinite money so everything is cool.”

Major Wall Street indices closed over 1.6% lower on Wednesday after Federal Reserve signaled it might soon pause future interest rate hikes amid the recent crisis, but Chair Jerome Powell reasserted his commitment to bring inflation down to 2%.

The Fed hiked the policy rates by an expected 25 basis points. The SPDR S&P 500 ETF Trust SPY closed 1.7% lower and the Invesco QQQ Trust Series 1 QQQ lost 1.36%.

A rise in rates almost always translates to a rise in Treasury yields. Two-year Treasury notes, which are very sensitive to the central bank's policy moves, are currently yielding 3.96%, albeit they fell on Wednesday after the central bank's rate decision.

If investors get a higher yield on these instruments, which are much safer than depositing money in the bank under the current environment, depositors definitely will be eyeing a shift away from the banking system.

This holds more importance given that Treasury Secretary Janet Yellen said Wednesday that the FDIC was not considering providing “blanket insurance” for banking deposits.

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