Tesla CEO Elon Musk Warns of Economic Headwinds, Says Fed Will be Slow to Lower Rates

CEO of Tesla, Elon Musk, warned Tuesday that the economy is in for a challenging year ahead and said the Federal Reserve would be too slow to lower interest rates amid worsening economic conditions.

Musk was interviewed after Tesla’s annual meeting by CNBC’s David Faber and asked how the Fed’s policy could make it a challenging year for Tesla. The CEO responded that it would be a tough year “for everyone, not just Tesla” and blamed the Fed’s recent rate hikes to tamp down doggedly high inflation.

“You can think of raising the Fed rate as somewhat of a brake pedal on the economy, frankly. It makes a lot of things more expensive — certainly, things that are bought with credit,” said Musk. “But then it has downstream effects even on things that aren’t bought with credit.”

He explained that “if the car payments or your home mortgage payment is absorbing more of your monthly budget, then you have less money to buy other things. So actually, it affects everything, even those that aren’t bought on a line credit.”

Musk: Federal Reserve making decisions, operating with too much latency

“My concern with the way the Federal Reserve is making decisions is they’re just operating with too much latency,” continued Musk. “Basically, the data is somewhat stale. The Federal Reserve was slow to raise interest rates, and now I think they’re going to slow to lower them.”

Earlier in the month, the Fed raised interest rates again for the 10th consecutive time while the benchmark federal funds rate is at the highest levels in 16 years.

However, the central bank signaled it may pause future monetary policy moves, and further rate hikes will hinge on “incoming information.”

The post-meeting statement by the Fed noted, “In determining the extent to which additional policy firming may be appropriate to return inflation to % over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation and economic and financial developments.”

The statement left out a phrase that had been included in the previous statement announcing a rate hike, in which the central bank indicated that “some additional policy firming may be appropriate” to bring inflation near the 2% target.

Jerome Powell, Federal Reserve Chairman, said in a post-meeting press conference, “A decision on a pause was not made today,” however, he emphasized that, “We’re no longer saying that we ‘anticipate,’” and restated that the future policy decisions by the Fed will “be driven by incoming data, meeting to meeting.”