Starwood Capital CEO Barry Sternlicht Blasts Fed's Rate Hikes

　　Sternlicht Argues That the Fed Created the Banking Crisis and Will Hurt the Economy

　　Barry Sternlicht, the CEO of Starwood Capital, has launched a scathing attack on the Federal Reserve, accusing it of creating the banking crisis and harming the economy with its aggressive interest rate hikes.

　　“Obviously he [Fed Chair Jerome Powell] didn’t need to do what he did,” Sternlicht said on CNBC’s Squawk Box on Thursday, referring to the latest interest rate increase this week, the ninth since 2022.

　　Sternlicht, whose hedge fund manages over $100 billion, argued that Powell’s assertion that the economy will not slow down due to the current banking crisis is flawed.

　　“He [Powell] is using a steamroller to get the price of milk down two cents, to kill a small fly,” Sternlicht said, criticizing the Fed’s focus on fighting inflation (the fly) while ignoring its impact on banks.

　　Sternlicht also pointed to weak regulations that allowed banks to appear stronger than they were and an “irresponsible” lack of preparation for a downturn. He also criticized regulators for failing to conduct stress tests, which assess whether banks have enough capital to withstand an unexpected crisis, in anticipation 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, referring to 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, predicting a recession due to the Fed’s interest rate hikes.

　　Sternlicht’s criticism of the Fed is not new. In October, he blamed Powell’s persistent rate hikes for threatening capitalism and potentially leading to social unrest. The following month, he called the interest rate hikes “self-inflicted suicide” because they shrink economic growth without directly fighting inflation, which has been on a downward trend for about eight months.

　　Sternlicht is not alone in his criticism of the Fed. Mark Zandi, chief economist at Moody’s, called the recent rate hikes “disappointing,” adding that they are not enough to “break things,” but show how the Fed is blinded by its inflation fight.

　　Zandi also criticized the Fed for keeping rates too low for too long as the economy began to recover from the pandemic, forcing it to play catch up to the rapid price increases.

　　The recent rate hike was expected, as Powell had indicated the possibility of rate increases for the rest of 2023. However, the meltdown of Silicon Valley Bank earlier this month, which led to “sheer panic” and the subsequent collapse of crypto-focused lender, Signature Bank, has raised concerns about the Fed’s continued rate hikes.

　　Banks like Goldman Sachs thought the banking rout would force the Fed to halt interest rate increases briefly, but that didn’t happen. It remains unclear whether the Fed will stop the rate hikes anytime soon.