Musk vs. Ackman: Should the Fed Hike Rates Tomorrow?

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  • Elon Musk and Bill Ackman have shared dissenting opinions on the Fed rate hike decision tomorrow.
  • While Ackman has joined the masses, arguing the Fed should pause rate hikes on Wednesday, Musk believes the central bank should actually lower interest rates by 50 basis points.
  • The Fed has a tough decision ahead of it. With the banking crisis still top of mind, either decision could summon a strong critical response.

 

fed rate hike - Musk vs. Ackman: Should the Fed Hike Rates Tomorrow?

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Tensions are high ahead of tomorrow’s make-or-break rate hike decision. Just yesterday, Tesla (NASDAQ:TSLA) Chief Executive Elon Musk faced off with billionaire hedge fund manager Bill Ackman on Twitter over the crucial Federal Open Market Committee (FOMC) meeting Wednesday. Will the Fed hike rates after all?

Well, depending on who you ask, maybe. Tomorrow’s FOMC meeting may represent the most challenging decision the central bank will have to make this cycle. Indeed, caught between a rock and a hard place, the Fed will have to choose between raising rates at the cost of a potential recession and political backlash. Alternatively, it could take the safe route, leaving rates as is while inviting the possibility of more inflation.

There are genuinely no right answers for Fed Chair Jerome Powell tomorrow as the regional banking crisis continues to test the lengths the central bank will go to ease prices.

Now, there is a third option: Musk thinks the Fed should lower rates by at least 50 basis points on Wednesday. In response to a lengthy Ackman tweet Monday where the fund manager offers his justification for leaving rates alone, Musk chimed in, arguing for an even more dovish monetary response.

Being the face of controversy isn’t exactly a new identity for the newfound Twitter owner. That said, very few analysts are even considering the possibility of a rate reduction on Wednesday. The Fed has repeatedly hinted at more rate hikes, even at the cost of economic deterioration. Despite this, the recent banking crisis has, according to most economists, put a stiff wall in front of the central bank’s deflation efforts.

Will There Be a Fed Rate Hike Tomorrow?

If you’ve been keeping up, things have changed tremendously in just a few weeks. From projections of a return to a 50 bp rate hike earlier this month, currently, many economists believe the Fed will leave rates untouched on Wednesday. Indeed the SVB banking crisis has challenged many assumptions economists and analysts made for the central bank’s rake hike procedure.

That said, 25 basis points is seemingly the baseline trajectory for the central bank, even in the face of an unstable regional banking sector.

“I am very doubtful that SVB crisis will change monetary policy,” Hugh Johnson, Chairman of Hugh Johnson Economics, told Bloomberg.“I believe the crisis will be contained (limited) and systemic risk is quite low.”

The current banking panic is nothing to scoff at, however. Several regional banks have gone belly up, while several more await cash injections to stay afloat. The Treasury Department is exploring raising the FDIC insurance limit to cover all deposits at many of these mid-sized banks, a relatively unprecedented move for the regulator.

Heading into Wednesday, the Fed is likely also torn regarding what tone to set for the markets. A pause will likely read dovish to many analysts — potentially a sign the Fed may not be quite as brutal on its rate hike efforts as it previously stated.

According to Diane Swonk, Chief Economist at KPMG, should the Fed pause rate its rate hikes, it’ll be essential to maintain its hawkish narrative:

“The Fed needs to engage in a hawkish pause to assess financial stability and prevent a larger credit market seizure….They are in a bit of a policy box as the credit tightening that occurs via regional banks will be significant.”

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2023/03/musk-vs-ackman-should-the-fed-hike-rates-tomorrow/.

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