Elon Musk's Warning Ahead Of Fed's Feb. 1 Decision: 'Higher The Rates, Harder They Fall'

Zinger Key Points
  • The FOMC is set to meet at the end of this month and the next rate verdict is expected on Feb. 1.
  • The Fed has signaled its intent to curb inflation at any cost even if it means hurting growth to some extent.

Tesla CEO Elon Musk took to Twitter to recall the Federal Reserve's lowering interest rates in the aftermath of the 2007-09 Great Recession.

The billionaire also recounted how his flagship electric vehicle venture received timely help back then.

What Happened: Sharing a chart of the Fed funds rate, Musk reflected on what would have happened in 2009 had the Fed raised rates instead of lowering them.

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In response to the financial crisis and a recession in December 2007, the Fed under Ben Bernanke, went on a rate-cutting spree, taking it down from 5.25% in August 2007 to 0-0.25% by December 2008. The Fed rate was kept at extremely accommodative levels until November 2015. Taking advantage of an ultra-loose monetary policy and fiscal stimulus, the economy emerged from recession in June 2009 and limped back to normalcy subsequently.

“The higher the rates, the harder the fall,” Musk said in a threaded tweet.

Musk's comments come against the backdrop of a looming recession threat. The Federal Open Market Committee (FOMC), chaired by Jerome Powell is scheduled to meet for a two-day meeting on Jan. 31. A decision on the Fed rate is due on Feb. 1 after the meeting ends. After reducing rates to 0-0.25% in the aftermath of the COVID-19 outbreak in early 2020, the central bank began hiking rates in March 2022.

The Fed rate is currently at 4.25%-4.50% after a cumulative 425-basis-point increase.

See Also: Wharton's Jeremy Siegel Says There's A Chance To Avoid A Recession If This Happens: 'Inflation On Forward-looking Basis Is Very Low'

Daimler’s Timely Help: A Twitter user reminded Musk of the precarious position Tesla found itself in back in 2009. At that time, the electric vehicle manufacturer struggled with operational and financial issues while commercially manufacturing its Model 3 sedan, which later became a resounding success.

Musk had previously said Tesla was at risk of going bankrupt then, and that it was Daimler’s 2009 investment that actually saved the company.

Daimler is now known as Mercedes-Benz Group AG MBGAF after having divested its commercial truck division.

Daimler picked up a 9.1% stake in Tesla in May 2009 for $50 million but gradually divested its stake by 2014, netting a profit of $780 million.

“Ironically, the company that made the first commercially viable internal combustion engine car saved the company that made the first commercially viable electric car!” Musk said.

Read Next: Why Cathie Wood Says Tesla Can Afford To Drop Prices With Limited Margin Impact


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Posted In: NewsTop StoriesEconomicsFederal ReserveBen Bernankeelectric vehiclesElon MuskEVsInflationJerome PowellRecessionTesla Model 3
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