A billionaire fund manager is warning that there are “cracks everywhere” in the U.S. economy which could be teetering on a total collapse of certain sectors like housing.
In an interview with CNBC’s “Squawk Box” on Thursday, Barry Sternlicht, the chairman and CEO of Starwood Capital, said he thinks the U.S. economy will lapse into a major recession if the Federal Reserve continues raising interest rates in order to curb inflation, which appears to be the central bank’s plan.
“The economy is braking hard,” Sternlicht told the financial news outlet, according to the Daily Caller. “If the Fed keeps this up, they are going to have a serious recession and people will lose their jobs.”
The CEO predicted that continued Fed rate hikes will lead to “cracks everywhere” throughout the economy, particularly the fragile housing market, where prices have finally begun to drop over the past few months after reaching record highs earlier this year.
“This is the steepest increase in rates in history — especially since Volcker – but the background of the country today is so different than when Paul Volker was chairman,” said Sternlicht.
“Look at the housing market, [the Fed has] caused a crash of unprecedented proportions,” Sternlicht told the outlet. “500,000 single family home sells, new sells, is the lowest since 1952. We are going to have a major crash in the housing market, and housing prices are going down. You are seeing housing prices correct.”
He went on to say that the expected Fed rate hike of .75 percent at the central bank’s next meeting will hit middle America the hardest.
“Take the consumer that you just mentioned, he is paying higher rent. He is actually paying more for food. And he is paying more for gas,” said the CEO and investor. “They [the Fed] are attacking the economy with a sledgehammer, and they don’t need to.”
Other analysts have said that the Fed’s actions are necessary in order to dampen demand for goods and services, which is currently driving record inflation.
“The standard theory since last year has been that the Fed needs to destroy demand. That means putting people out of work. It also means undercutting the housing market. My key assumption is until we see a sustained reversal in home prices, we’re unlikely to see inflation come down significantly,” said Forward Observer’s Mike Shelby in a note to subscribers on Thursday.
“Fed chair Jay Powell is still dealing with the ‘wealth effect,’ where Americans still feel comfortable enough to go out and spend money,” he added. “I’m not seeing demand destruction yet, and this is Powell’s big problem: as long as Americans still feel wealthy enough to go out and spend money like they have been, we’ll continue to see higher inflation.”