- The Fed's rate hikes are the equivalent of throwing "kerosene on the fire," Barry Sternlicht said.
- The real estate mogul has been a loud critic of the Fed policy.
The Federal Reserve botched its goal of lowering inflation without causing pain the the economy, and the central bank needs to stop interest rate hikes now as inflation is already most like below its target, according to billionaire real estate mogul Barry Sternlicht.
The Starwood Capital Group CEO, who has been a vocal critic of the Fed over the last year, pointed to the current risks facing the US economy, with forecasters warning of a recession as interest rates hover above 5%. Central bankers raised interest rates aggressively in the last 18 months to lower inflation. But they didn't need to go so far, Sternlicht argues, as some inflationary pressures from the pandemic have already started to resolve on their own.
Economists say the surge in prices was partly fueled by demand outweighing supply over the past few years. But that's seemingly reversed, as consumers run out of excess savings and are expected to soon pull back on spending.
"The economy was going to slow on its own. So [Powell] raising rates as fast as he did, as quickly as he did, is throwing kerosene on the fire," Sternlicht said in an interview with CNBC on Friday.
And more timely statistics suggest that inflation could already be at or below the Fed's 2% price target, given that shelter prices, the largest component of the Consumer Price Index report, lag behind the official statistics by about 18 months.
US single family rents rose just 3.3% year-over-year this summer, according to CoreLogic data, the slowest pace of growth since the pandemic. Meanwhile, CPI less shelter prices already shows prices dropping below 2%, Sternlicht said.
Lower inflation is good news for consumers, but potentially spells trouble for the US's recession outlook. High rates risk overtightening the US economy into a downturn, and Fed officials have warned that rates could stay higher-for-longer as they continue to monitor inflation pressures.
"[Powell] should just be patient. The Fed should stop, because what they're injuring is the balance sheet of the United States. The economy is going to slow," Sternlicht warned.
Sternlicht has repeatedly sounded the alarm for a US recession over the past year. That could also bring on a "Category 5 hurricane" for the commercial real estate industry, he previously said, as higher borrowing costs will cause firms to buckle under their debt burdens.