Barry Sternlicht, Founder, Chairman and CEO of Starwood Capital Group.
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According to Starwood Capital CEO Barry Sternlicht, the Federal Reserve’s continued interest rate hikes are pushing the US economy straight into a recession.
During a session of CNBC’s Financial Advisor Summit on Tuesday, Sternlicht said he believes an economic contraction will occur next year and that Fed Chairman Jay Powell “will make sure they get it right.” ‘missed’.
“The economy is absolutely going into a recession, and it’s absolutely definitive,” Sternlicht told CNBC’s Sara Eisen, who moderated the session. “Look at the yield curve [inversion] – it’s the steepest it’s ever been,” he said.
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An inverted yield curve – when short-term government bond yields are higher than long-term yields – is generally considered a predictor of recession. At this moment, the 10-year Treasury bond yields about 3.6%, compared to the Yield on 2-year bonds nearly 4.4%.
Although inflation is an integral part of an economy, the current rate is well above the Federal Reserve’s long-term target of 2%.
As measured by the consumer price index, which tracks changes in the prices of various consumer goods and services, inflation stood at an annual rate of 7.7% in October. However, this is down from the peak of 9.1% reached in June. The next reading of the index is set for December 13.
So far this year, the Fed has raised a key interest rate six times in its continued effort to reduce inflation. Another 0.50 percentage point hike is expected when the rate-setting committee meets again next week.
The general idea is that by increasing the cost of borrowing, expenses will decrease and there will be less inflationary pressure due to lower consumer demand.
However, Sternlicht said, it was too much, too soon.
“It’s not the absolute level of rates, it’s the pace,” said Sternlicht, whose business focuses primarily on global real estate.
“Markets cannot adapt to this,” he added. “It creates uncertainty.”
Despite his dire predictions, Sternlicht sees investment opportunities next year, especially in Japan.
“I’m interested in Japan,” he said. “It’s one of the few countries in the world that still has a gap between real estate returns and what we can borrow against.”
“I’m particularly interested in things like the hotel sector because the yen is so weak that I feel like when the Chinese leave China again – which they will eventually – they will go to Japan and will buy whatever they can bring back to China,” he said. “So I think Japan is an attractive bet right now for investors.”