Fed Nixes Elon Musk's Demand To Cut Interest Rates Immediately

It’s hard to say how effective the U.S. Federal Reserve’s tightening monetary policy has been at taming inflation. But one thing’s for sure: higher borrowing costs do not bode well for the economy. Unsurprisingly, experts — including Tesla CEO and Twitter owner Elon Musk — are now calling for rate cuts, Jing Pan reported for MoneyWise.

Photo Insert: Speaking at the Brookings Institution, Federal Reserve Chairman Jerome Powell says that inflation “remains far too high,” thus junking the demand of the loquacious Musk.

“Fed needs to cut interest rates immediately,” Musk says in a tweet. “They are massively amplifying the probability of a severe recession.” But even the richest person in the world doesn’t always get what he wants.

Speaking at the Brookings Institution, Federal Reserve Chairman Jerome Powell says that inflation “remains far too high,” thus junking the demand of the loquacious Musk, who has been busy disseminating racist hate speech at Twitter, reminiscent of the messages he imbibed while growing up in apartheid-era South Africa.

Investors don’t like prolonged rate hikes. The S&P 500 has already tumbled 15% this year. But not all assets are created equal. Some — like banks and consumer staples — might be able to perform well even if rates continue to rise.

For certain financials, like banks, higher rates are a good thing. Banks lend money at higher rates than they borrow, pocketing the difference. When interest rates increase, the spread of how much a bank earns typically widens.

In June, Morgan Stanley announced an 11% increase to its quarterly payout and a month later, Bank of America boosted its quarterly dividend by 5%.As for consumer staples, these are essential products such as food and drinks, household goods, and hygiene products. We need these things regardless of how the economy is doing or what the federal funds rates are.

When inflation drives up input costs, consumer staples companies — particularly those with entrenched market positions — are able to pass those higher costs onto consumers.

Even if a recession hits the U.S. economy, we’ll probably still see these items on every household’s shopping list. It’s hard to say how effective the U.S. Federal Reserve’s tightening monetary policy has been at taming inflation. But one thing’s for sure: higher borrowing costs do not bode well for the economy.

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