Elon Musk Fears Economic Disaster if This Is Not Done Immediately

(TheStreet) - The economy's health remains the main subject of concern for consumers and investors, who just about every week see another wave of corporate job cuts.

On Nov. 30, DoorDash was the umpteenth company to announce drastic cost reductions, including the elimination of 1,250 corporate workers. The company employed 8,600 corporate staff at year-end 2021.

"Our business has been more resilient than other e-commerce companies, but we too are not immune to the external challenges and growth has tapered vs. our pandemic growth rates," the food-delivery company's chief executive, Tony Xu, told employees.

"While our business continues to grow fast, given how quickly we hired, our operating expenses -- if left unabated -- would continue to outgrow our revenue."

Doordash  (DASH) - Get Free Report joins a long list of companies, including Amazon  (AMZN) - Get Free Report, Meta Platforms  (META) - Get Free Report, Lyft  (LYFT) - Get Free Report, Microsoft  (MSFT) - Get Free Report, Twitter  (TWTR) - Get Free Report, Stripe and HP  (HPE) - Get Free Report, to cut jobs as one of the responses to the current economic downturn.

Tech companies had been hiring aggressively during the pandemic as the economy shifted online. But they've seen a brutal slowdown in recent months, as a sharp rise in interest rates has hurt consumers and undermined business.

The Federal Reserve has raised interest rates sharply in recent months, taking the benchmark rate from almost zero during the pandemic to a range of 3.75% to 4%, in an effort to combat inflation, which is at its highest in 40 years. But many economists say that this aggressive monetary policy will plunge the economy into recession.

'Trend Is Concerning'

"I can tell you the economy does not look great right now. Things are slowing down. You’re seeing layoffs in many, many, many sectors of the economy. People are slowing down," Amazon's founder and executive chairman, Jeff Bezos, warned in mid-November. 

"My advice to people, small-business owners, is take some risks off the table. If you are going to make a purchase, maybe slow down that purchase a little bit," the billionaire said.

"If you are an individual and you are thinking about buying a new large-screen TV, maybe slow that down, keep that cash, see what happens. Same thing with a refrigerator, a new car, whatever. Let’s take some risks off the table."

Fellow billionaire Elon Musk shares these fears and has just called on the Fed to immediately stop raising rates to avoid economic disaster.

The plea came in a thread on Twitter, in which a Tesla investor said he was preparing for an economic recession in 2023.

"I am expecting a real economic recession in 2023, be prepare for any macro storm ahead of us," Vincent Yu said.

To which Musk, who is involved in Tesla, SpaceX, Twitter, Boring Co. and Neuralink, responded by referring to the central bank.

"Trend is concerning," the billionaire commented on Nov. 30. "Fed needs to cut interest rates immediately. They are massively amplifying the probability of a severe recession."



 

Musk's call comes the same day that Federal Reserve Chairman Jerome Powell is set to deliver a key policy speech in Washington.

Not the First Warning From Musk

Powell is scheduled to speak at 1:30 pm Eastern Time at a Brookings Institution event at the Hutchins Center. The speech on fiscal and monetary policy and the outlook for the economy, inflation, and the changing labor market, will be followed by a question-and-answer session from the audience.

Powell broke from the agreed Fed statement earlier this month, following the central bank's fourth consecutive 75-basis-point (0.75-percentage-point) rate hike. He insisted to reporters that it was too soon to consider pausing rate hikes, even as the Federal Open Market Committee's clearly indicated that smaller increases, with an eye toward peak rates, would likely be required in coming months.

Minutes of the Fed's November rate decision in fact showed that "a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate" to "better allow the Committee to assess progress toward its goals of maximum employment and price stability."

This is not the first time that Musk has warned of the consequences of rising interest rates for the economy. Last September, the entrepreneur warned that a jumbo interest rate increase would cause long-term deflation.

"A major Fed rate hike risks deflation," said the CEO of electric-vehicle-market leader Tesla  (TSLA) - Get Free Report at the time.

The consequences of deflation can be devastating for the economy because the fall in prices encourages households to postpone purchasing decisions while waiting for further price declines. 

This in turn can lead to a drop in overall consumption and an increase in inventories at companies, which can no longer sell their products. In response, they reduce production and investment.

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By Luc Olinga
November 30, 2022

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