Starwood's Barry Sternlicht Says What the Fed Is Doing to the Economy Is ‘Suicide'

Scott Mlyn | CNBC

The Federal Reserve's moves in 2022 to aggressively raise interest rates to cool down inflation will inflict greater harm to the economy than expected, according to Barry Sternlicht, chairman and CEO of Starwood Capital Group.

"It's not sustainable," he said on CNBC's "Squawk Box" Thursday. "What they want to do is clearly suicide."

The impact of the Fed's rate hikes won't hit right away, he said. Instead, companies will pull back their budgets for 2023 as they worry about economic recession and consumer weakness. That will add pressure to companies and could continue to weigh on stocks.

The destruction of wealth that's taking place now, and the movement of capital from investment in new plants and equipment that will grow the economy, is instead going to pull it back, he said.

"It's going to slow the economy, it cannot do anything other than that," he said.

At the same time, geopolitical turmoil is weighing on the U.S. The U.S. Treasury may have to start buying its own assets, doing its own kind of quantitative easing while the Fed is increasing interest rates and trying to slow the economy, he said.

"Otherwise, interest rates could get out of hand and you're going to have inflation and you're going to go right over the edge because there's no global growth," said Sternlicht, adding that weakness in Europe will further hurt, and even a China reopening won't be a huge catalyst for U.S. companies.

Slowing global growth

That U.S. consumers have also spent down stimulus money from the pandemic just adds to the lack of growth catalysts, according to Sternlicht. He sees debt increasing and moving into a negative spiral.

He added that part of the reason that the Fed's rate hikes won't work is that inflation has been spurred by the war in Ukraine, which has roiled oil and agricultural commodity markets, such as wheat.

"This is not core inflation and interest rates have nothing to do with it," he said.

The harm is that killing the global economy will also spill over into other things, like equity markets.

"These are people that did solid investing, they weren't stupid," he said.

Copyright CNBC
Contact Us