To this day, the impact of the Federal Reserve's interest rate hike has been reflected in multiple aspects, such as pushing up bond yields, hitting the real estate market, and disrupting the commercial real estate industry.
However, Barry Sternlicht, CEO of Starwood Capital and billionaire, believes that the biggest victim may be the US government.
He said at a meeting on Wednesday, "The biggest victim of today's Fed rate hike is actually the federal government, which must now pay 5% interest on $33 trillion in debt
The Federal Reserve has raised interest rates by more than 5 percentage points since March 2022. This is the fastest rate of interest rate growth in 40 years, and in Sternlicht's view, interest rates must start to decline from now on.
In my opinion, the Federal Reserve will have to relax because they have no other choice, "he said. No Western democratic country can maintain such high interest rates. They can't afford it. You end up printing money endlessly to pay for the interest expenses of the deficit
In fact, some experts worry that the impact of interest rate hikes will be so great that the auction of US treasury bond bonds may fail because no one is willing to buy US treasury bond. This year, the credit rating of the United States has been downgraded by Fitch Ratings, which has intensified people's concern that American treasury bond bonds are no longer regarded as a haven for a long time.
Sternlicht also pointed out that compared with the last time the Federal Reserve raised interest rates in the 1980s, the accumulation of US debt is one of the key differences in the current fiscal environment.
People talk about Paul Volcker, saying that Jerome Powell is a follower of Volcker, and that a 22% interest rate has slowed inflation. But Volcker does not have a deficit of $33 trillion, he only has a deficit of $200 billion. The amount of interest rate is not important, "he added.
In recent years, the massive fiscal stimulus program passed by the US government has increased the burden of US debt. President Biden's economic policy includes injecting a large amount of funds into the economic sector. Expenditures such as the Chip Act, Inflation Reduction Act, and Infrastructure Bill, which promote domestic semiconductor production, involve significant government expenditures.
Sternlicht believes that these spending plans have been supporting the US economy, while at the same time, raising interest rates means that private companies are facing the impact of rising borrowing costs.
He said, "There is a tug of war between federal government spending and the private sector. This will lead to future inflation. For example, we haven't built enough houses. No one will build enough houses at such high interest rates