© Thomson Reuters Barry Sternlicht. Thomson Reuters - Barry Sternlicht warned that the Fed's rush to raise interest rates and shrink the money supply is weakening the stock market.
- The billionaire investor said the Fed's sluggish response to inflation threatens to plunge the economy into recession.
- “So they thought the healthy fish would survive and the sick ones would die. But the Federation destroys the entire pond, so everyone dies."
Barry Sternlich said Tuesday that the Fed's struggle to raise interest rates and fight inflation is weighing on the stock market, warning that even "healthy fish" will die when the economy and money supply take hold.
The chairman and CEO of Starwood Capital criticized the Fed's slow response to inflation and high liquidity market conditions in an interview with Bloomberg. Rising prices eventually prompted the central bank to sharply raise interest rates and begin shrinking its balance sheet this year, but faster growth could easily push the economy into recession, economists warn.
“Powell was incredibly slow to do it. He just sat on the sidelines as the stock market continued to fluctuate,” Sternlecht said, adding that a late reaction could wipe out investors' interest in the market.
“There were some really smart things people were doing, and there were smart fish in the pond. And there were stupid things that people were doing, stupid investments… so I thought the healthy fish would survive and the sick ones would die. "The Federation destroys the entire pond, so everyone dies.
His warning echoes other experts who have predicted that stocks will fall as the Federal Reserve tries to support the economy. JPMorgan CEO Jamie Dimon warned that stocks could fall another 20%, while "Doctor Doom" economist Nouriel Robini said stocks could fall 40%.
Sternlecht added that the Fed could be putting too much pressure on the economy by keeping interest rates high on a consumer price index that is still above the 2% inflation target. But experts say the figure lags the economy by 18 months, meaning the central bank could be basing its rate hike decisions on outdated data and could push the economy into deflation.
Currently, the Fed expects it to continue to rise until it reaches a final rate of 4.6%. That's more than a percentage point above the current federal funds rate, and the central bank is preparing to hit the economy in a way that will cost "millions" of jobs around the world.
“I'm very angry because people are saying the Fed needs confidence to fight inflation. You will get what you want. You're going to have this collapse, it's bound to happen."
But despite the expected volatility in the market, he pointed out that long-term investment opportunities can be seen as stocks eventually decline and some prepare for a rally.
"I'm looking for opportunities that I think are incredibly attractive long-term investments, and I think you're starting to see them," Sternlecht added.