Investor

Billionaire investor Barry Sternlicht says Jerome Powell and ‘his merry band of lunatics’ are destroying faith in capitalism and driving us to ‘social unrest’

Barry Sternlicht, the billionaire CEO of Starwood Capital Group, a private investment firm, hasn’t thrown a punch when it comes to criticizing the Federal Reserve this year.

In September, Sternlicht said the Fed was using “old datato attack the economy with unnecessary interest rate hikes. And this month he argued that the economy is “breaking hard” as borrowing costs soar, meaning a recession is now almost inevitable.

But in an interview with Fortune this week, Sternlicht’s gloves are completely gone.

The billionaire investor said if the Fed continues to raise interest rates, as it has done five times this year, the effects will be so destructive that they will put the entire capitalist system at risk.

“So the rich guy who loses 30%, he’s still rich, right? But the poor guy who works by the hour and loses his job, he’s going to say, ‘Capitalism is broken, it didn’t work for me. I lost my job. And this whole system has to go,” Sternlicht said. Fortune.

“You are going to have social unrest,” he added. “And that’s just because of Jay Powell and his merry band of lunatics.”

Sternlicht is not alone in worrying that rising interest rates could trigger a recession. Economist Steve Hanke said Fortune the Fed was “incompetent”, and says we could be heading for a period of stagflation or recession. And Mohamed El-Erian, the president of Queens’ College Cambridge, has repeatedly said that the Fed was too slow to react to inflation last year. Earlier this month he added that as a result the the risk of recession is now “uncomfortably high”.

For investors, rising interest rates are also weighing on equities, meaning the next few years are unlikely to be as good as the bull market of 2020 and 2021.

Sternlicht thinks the Fed is basing its decision to raise interest rates on lagging inflation data, when it should instead be looking at “real-time” statistics and talking to leaders on the ground.

The billionaire, who founded Starwood Property Trust, which owns around 250,000 residential properties nationwide, says rents are ‘slowing’ across the board, but the consumer price index (CPI) still factors in rent price increases that occurred more than six months ago, giving the Fed a misleading picture of the state of inflation in the economy.

Sternlicht also points to falling commodity prices as evidence that inflation is starting to subside. The CRB commodity indexa large measure of global commodity prices, has fallen 20% from its July high.

The investor added that he believes the Fed has missed its chance to eliminate inflation in 2021, and is now trying to make up for past mistakes. But he stressed that two wrongs do not make a right.

“They missed their moment during the crazy casino of 2021 when Gamestop was at $350 per share and the crypto world was worth $3 trillion,” he said. “It’s too late to fix it now.”

Sternlicht thinks the Fed should hold off on rate hikes and wait for the effects to hit the economy before deciding what to do next.

When asked why he thinks the Fed isn’t watching more real-time data and seems focused on raising rates, Sternlicht gave a pointed response.

“I think they may not be up to the task,” he said. “Maybe they’re not smart enough to understand the impact of their actions. It’s a bit like, and I’m not joking here, the inmates who run the asylum. I think they are just plain wrong.

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