Elon Musk Criticizes The Fed's Actions, Here's What He Says!

JAKARTA - The crisis in the US banking sector has intensified with the collapse of three large banks in the past week. In addition, the First Republic bank also received rescue, while Credit Suisse received 50 billion Swiss francs from the Swiss National Bank.

Despite the assistance and hope that the central bank will inject liquidity of up to US$2 trillion (equivalent to Rp. 30.7 quadrillion) after the establishment of the Bank Term Funding Programme, the banking industry is still not out of trouble. A recent study showed that 186 US banking institutions experienced the same financial risks that caused the failure of Silicon Valley Bank.

Tesla CEO Elon Musk recently returned to criticizing the Federal Reserve on Twitter. Musk has previously warned that a rate hike by the central bank in December could increase the risk of a recession.

After the Fed raised interest rates by 50 basis points, Musk reiterated his view that the rate hike may be the most damaging in history. Musk criticized the US central bank in a number of viral tweets regarding the slow pace of data being released by the Fed.

“The Fed is operating with too much latency in their data. Tariffs need to come down soon,” Musk wrote in a Twitter comment, on March 18, 2023.

Musk suggested that the Federal Deposit Insurance Corporation (FDIC) change its coverage to unlimited to stop bank runs. For information, a bank run is a phenomenon in which a large number of bank customers withdraw their deposits together in a short time because they are worried that the bank will not be able to fulfill its obligations. A bank run usually occurs when there is speculation that spreads rumors that the bank is about to go bankrupt or is unable to pay its debts.

Furthermore, Musk added that the Treasury should stop issuing bills with too high yields and that it makes no sense to keep money in bank savings accounts with low-interest rates. Musk also criticized the slow pace of data being released by the US central bank and said that interest rates should be cut soon.

Musk's comments about Treasury bonds refer to long-term bills impacted by the Fed's tight monetary policy. The study of 186 banks experiencing similar financial problems showed that Treasury bonds with maturities of 10 to 20 years and 20 years and above have lost about 25 percent to 30 percent of their market value.

"Overall, as can be seen, the tighter Fed monetary policy led to a significant decline in the value of long-term assets," the study explained.

Musk has constantly criticized the US central bank's campaign of rapid interest rate hikes. On January 13, 2023, Musk asked what would happen in 2009 if the Fed raised interest rates instead of lowering them.

In a follow-up tweet, Musk added, "The higher the interest rate, the harder it falls." Musk's criticism of the Fed suggests that he feels the US central bank has been too slow in addressing the banking sector's financial problems and needs to take action ASAP.