The Fed will see it ‘blew it,’ predicts Starwood’s Barry Sternlicht

In Starwood Capital CEO Barry Sternlicht’s view, the Federal Reserve’s ongoing rate of interest hikes are driving the U.S. financial system straight right into a recession.

Throughout a session of CNBC’s Financial Advisor Summit on Tuesday, Sternlicht mentioned he thinks that an financial contraction will emerge subsequent yr and that Fed Chairman Jay Powell “will see that they blew it.”

“The financial system is totally going right into a recession, and it is completely definitive,” Sternlicht instructed CNBC’s Sara Eisen, who moderated the session. “Take a look at the yield curve [inversion] — it is the steepest it is ever been,” he mentioned.

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An inverted yield curve — when short-term yields on authorities bonds are greater than long-term yields — is usually thought-about a recession predictor. Proper now, the 10-year Treasury bond is yielding roughly 3.6%, in contrast with the 2-year bond’s yield of virtually 4.4%.

Whereas inflation is a standard a part of an financial system, the present price is much above the Federal Reserve’s goal of two% over the long term.

As measured by the buyer value index, which tracks value adjustments amongst a wide range of client items and companies, inflation was working at an annual pace of 7.7% in October. That is down, nevertheless, from a peak of 9.1% in June. The subsequent studying of the index is ready for Dec. 13.

Thus far this yr, the Fed has boosted a key interest rate six times in its ongoing effort to deliver down inflation. One other hike of 0.50 proportion factors is anticipated when the rate-setting committee meets once more subsequent week.

The overall thought is that by elevating the price of borrowing cash, spending will decline and there will likely be less inflationary pressure resulting from decrease client demand.

Nonetheless, Sternlicht mentioned, it has been an excessive amount of, too quick.

“It is not absolutely the stage of the charges, it is the tempo,” mentioned Sternlicht, whose agency primarily focuses on world actual property.

“Markets cannot modify to that,” he added. “It creates uncertainty.”

Regardless of his gloomy predictions, Sternlicht does see funding alternatives subsequent yr — notably in Japan.

“I am keen on Japan,” he mentioned. “It is one of many few nations on the planet that also has a selection between the yields on property and what we will borrow at.”

“I am notably keen on issues just like the lodge sector as a result of the yen is so weak that I’ve a sense that when the Chinese language depart China once more — which they may finally — they may go to Japan and purchase every little thing they will carry again to China,” he mentioned. “So I believe Japan is an attention-grabbing wager proper now for buyers.”