Monday, March 27, 2023
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Inflation will go negative by mid-year, but risk remains as the Fed may keep raising rates, billionaire investor Barry Sternlicht says

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“Inflation will go negative in May or June, because the housing equivalent number is pointing positive. The risk is he [Powell] keeps going,”

— Barry Sternlicht, CEO, Starwood Capital Group

Billionaire Barry Sternlicht, the chief executive officer and chairman of property investor Starwood Capital Group, expects the U.S. economy to slide into recession in the third or fourth quarter of 2023 due to the Federal Reserve’s interest rate hikes, but inflation could fall below and even enter into negative territory by mid-year.

In an interview with CNBC’s “Squawk Box” on Thursday, the billionaire investor said the housing cost, which is the inflation’s biggest component, is pointing positive and may ease this year, which helps the inflation come down to the 2% target level set by the Federal Reserve, and it could go negative in May or June.

MarketWatch reported earlier this month that economists at Goldman Sachs see the core component of inflation falling faster than anticipated as asking rents for apartments fall, based on monthly leasing activity since 2021. However, the central bank’s “official” annual measure of rent, shelter costs, is still elevated. The cost of shelter, which is the single biggest category of the CPI, jumped 0.8% in December, while its yearly increase rose to a new 40-year high of 7.5% from 7.1%, the Bureau of Labor Statistics reported. 

Sternlicht warned last year that the global economy will “crumble” if the U.S. central bank doesn’t stop raising interest rates. He also said the Fed should pause to assess how its interest-rate hikes are impacting the economy as they have already done “enough” to curb inflation. The Fed has already delivered seven consecutive rate rises for 2022 to lift the target federal funds rate range to 4.25% – 4.5%, the highest since 2007. 

Earlier this week, Cathie Wood, CEO of Ark Investment Management, also said in her company’s 2023 market outlook that inflation will eventually come down to the 2% level and predicted that it could go negative due to the ongoing contraction in the money supply. 

U.S. stock indexes traded modestly higher on Thursday after a report on fourth quarter GDP came in slightly stronger than economists had anticipated, boosting Wall Street optimism about the outlook for the economy. The Dow Jones Industrial Average
was up 0.2%, while the S&P 500
rose 0.5% and the Nasdaq Composite
gained 0.9%.


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