Elon Musk Gives Dire Warning On Economy If Fed Doesn't Change Course: 'Mark My Words...'

The Federal Reserve's monetary policy-setting arm, the Federal Open Market Committee, is set to meet for two days beginning this Tuesday. Ahead of the meeting, Tesla CEO Elon Musk reiterated his worries concerning the ramifications of another rate hike by the central bank.

What Happened: The data that the Fed uses has too much latency, Musk tweeted on Sunday, adding that a “mild recession is already here.”

The billionaire entrepreneur referred to the recent banking crisis, which resulted in the shuttering of the Silicon Valley Bank and also the bailout of the Swiss investment bank Credit Suisse Group AG CS.

"It's not like just the canary in the coal mine (SVB) died, one of the staunchest miners (Credit Suisse) died too & the cemetery is filling up fast!" he wrote.

Musk also raised the specter of a severe recession. "Further rate hikes will trigger [a] severe recession. Mark my words," he tweeted.

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Rate Outlook: The futures currently price in an 83.9% probability of a hike of 25 basis points, which would take the fed funds rates to 5 – 5.25%. Recent inflation data has shown softening of pricing pressure, although it is still at levels that could cause discomfort to the Fed.

In a recent interview, former Treasury Secretary Larry Summers pointed to the employment cost index, which rose 4.8% year-over-year in the first quarter. The figure, which economists consider the best measure of wage inflation, is way off the Fed's 2% target, he said, adding that he sees a stagflation ahead.

More importantly, the banking crisis is continuing to grow more legs. First Republic Bank FRC, another regional bank, is teetering on the brink, with rife speculation that the Federal Deposit Insurance Corporation will place it under receivership and sell it as early as this weekend.

The banking crisis has been blamed on a string of Fed rate hikes, which have eroded much of the value of Treasury bonds held by these banks in their balance sheets.

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Photo: Thomas Hawk via flickr