Starwood Capital’s CEO Barry Sternlicht thinks the Fed created the banking crisis by itself, and that its interest rate hikes will hurt the economy.
“Obviously he [Fed Chair Jerome Powell] didn’t need to do what he did,” he told CNBC’s Squawk Box on Thursday about the latest interest rate increase this week, the ninth since 2022.
Sternlicht, whose hedge fund manages over $100 billion, said that Powell’s argument that the economy will not slow down due to the current banking crisis was flawed.
"He [Powell] is using a steamroller to get the price of milk down two cents, to kill a small fly," Sternlicht said about Fed’s fight against inflation (the fly) while ignoring its impact on banks.
He complained about weak regulations that allowed banks to appear stronger than they were and an "irresponsible" lack of preparation for a downturn. Regulators also failed to conduct stress tests, which involve assessing whether banks have enough capital to make it through an unexpected crisis, in the event of higher interest rates.
"You do not have to see the car hit the wall to know it's going 8,000 miles an hour and it will hit the wall," Sternlicht said about the latest rate hikes and their potential to hurt banks, particularly regional banks that are already facing market turmoil.
"The economy will have a hard landing," he added, referring to the economy falling into recession due to the Fed's interest rate hikes.
In February, the inflation rate was 6% year-over-year, down from 6.4% in January and far below the four-decade peak of 9.1% last June.
“There's good inflation and bad inflation. Good inflation is wage inflation—we should be having parties,” Sternlicht said. “He [Powell] is limiting inflation to 2%...that is not what we should want.”
