The fed funds rate went up for a third straight week in a row, and the US Federal Reserve announced a 75 basis point hike in the funds rate last week.
The U.S. central bank received flak from several quarters, and Wharton Professor of Finance Jeremy Siegel was particularly critical of the Fed in a recent CNBC interview. On Saturday, Tesla, Inc. TSLA CEO Elon Musk endorsed the professor's view.
What Happened: Siegel was heavily criticised by the Fed for not tightening monetary policy before inflation went out of control. He said that the central bank is making another mistake by tightening monetary policy aggressively.
The last two years are one of the biggest policy mistakes in the 110-year history of the Fed, by staying so easy when everything was booming, Siegel said.
When commodity prices spiking, the Fed under Jerome Powell stood pat, and now when commodities and asset prices are on the way down, the central bank sees stubborn inflation that requires it to stay tight all the way through 2023, according to Siegel. See also: Cathie Wood Finds This 'Most Disappointing' About Fed's Move -- Sounds Alarm On This Overlooked Factor.
He believes that the recession is coming to an end, with the working- and middle-class Americans paying the price.
He said that I am very upset and that it sounded like a pendulum. They were way too easy to do through 2020 and 2021. Now the Fed says, We're going to be really tough guys until we crush the economy, he added.
I mean, poor monetary policy would be an understatement. Musk commented on the quote-tweeting of the CNBC video, Musk said. Siegel is obviously correct. The billionaire said there is too much latency in the Fed's decisions ahead of the September rate hike, and that it is problematic in a fast-changing world. He previously commented on Ark Invest founder Cathie Wood's tweet about the Fed relying on lagging indicators and taking cues from the situation that prevailed in the 1970s when the central bank aggressively raised rates to ward off inflationary pressure that had been in place for about 15 years.
Musk said that the fundamental error is to reason by analogy rather than by first principles.