As the U.S. banking sector continues to suffer from financial risks and the collapse of major banks, Elon Musk, CEO of Tesla and Twitter owner, has been inciting criticism towards the Federal Reserve. He has been vocal about the central bank’s use of data latency and called for an immediate drop in the federal funds rate to address these issues. As per a recent study, 186 banking institutions in the U.S. are facing similar financial risks that caused Silicon Valley Bank to fail.
Musk’s criticism of the Federal Reserve is not new. In December 2022, he warned that if the central bank raised the benchmark rate, the risk of a recession would greatly increase. After the Fed raised the rate by 50 basis points, Musk reiterated his stance, calling it the “most damaging ever.” In recent weeks, he has continued to criticize the Fed for its operation with data latency and urged it to drop interest rates immediately.
Musk’s commentary on Treasury bonds relates to the long-maturity bills affected by the Fed’s monetary tightening policy. The study about 186 banks highlights that 10- to 20-year and 20+ year Treasury bonds have lost roughly 25% to 30% of their market value. “Overall, as is evident, the Fed’s monetary policy tightening caused significant value declines in long-duration assets,” the study explains. Musk has continuously called out the Fed’s swift rate-hike campaign and the risks to the market through Twitter.
The recent U.S. bank collapses, including the bailout of First Republic Bank and Credit Suisse receiving 50 billion Swiss francs from the Swiss National Bank, have further escalated Musk’s criticism of the central bank. Despite bailouts and expectations of the central bank to inject up to $2 trillion in liquidity, the banking industry remains unsteady.
Musk has also expressed his views on FDIC and Treasury’s policies towards savings accounts and high-yield bills. He believes that FDIC should change to unlimited coverage to stop bank runs, and the Treasury should stop issuing high-yield bills to discourage investors from keeping money in low-interest bank savings accounts.
Musk’s take on the Federal Reserve’s monetary policy is controversial. While some people believe his criticism is well-founded, others feel that pressure on the operation of a central bank by an individual CEO could be dangerous. The CEO of the world’s biggest electric carmaker probably doesn’t express the views of all business magnates. Nonetheless, his voice has caused a lot of attention and sparked debate on social media.
In conclusion, amidst the chaos in the U.S. banking sector, Elon Musk has been critical of the Federal Reserve’s monetary policy, suggesting that its use of data latency and lack of action to drop interest rates are contributing to the financial instability. His commentary has sparked debate on the role of the central bank in the market, with some lauding his position, while others criticizing a CEO’s involvement in monetary policy. Nonetheless, with financial risks in the banking industry remaining, it remains to be seen how the Fed will address Musk’s criticism and ensure the stability of the U.S. economy.