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Elon Musk Hints at Deflation

Elon Musk, CEO of Tesla and SpaceX, issued an alarm for the American economy. Musk believes deflation will occur if the Federal Reserve increases interest rates considerably. The warning came as market watchers expected a tremendous rate rise from the Federal Reserve at the September FOMC meeting.

Unfortunately, Musk isn’t the first prominent personality to have pointed toward a bleak future for the US economy. Michael Burry, Scion Asset Management founder and a renowned investor, predicted a similar economic collapse to the 2008 crash.

A possible recession?

Peter Schiff, a prominent economist, is advising a warning about imminent hyperinflation. He said that the Federal Reserve would swiftly switch to quantitative easing, accelerating inflation massively.

If the Fed spikes interest rates again, it will lead to deflation, according to Elon Musk. When there is a general price drop, it is called deflation. A variety of sources, including an increase in productivity and/or a drop in demand or a reduction in the money supply of a country, may lead to deflation.

Customers benefit from deflation as the money goes away. On the contrary, if this goes on persistently for a significant amount of time, it might lead to the economy contracting.

The Federal Reserve Board will determine the rise of interest rates on September 21st, 2022. The CME FedWatch tool signals a 91% chance of a 75 basis point rise. In addition, Goldman Sachs revised its projection upward, up to 75 bps from 50 bps. An important factor to consider will be the consumer price index data that will be released on September 13th.