Elon Musk has blamed the Federal Reserve for the steep decline in Tesla shares this year. Musk claims that the Fed’s interest rate increases have made the stock market less attractive to investors.
“Tesla is executing better than ever!” Musk responded in a tweet on Friday. He responded to a Tesla shareholder who accused him of being responsible for the company’s loss. Tesla has a nearly $600 billion market valuation loss this year.
“We don’t control the Federal Reserve,” the CEO of Tesla, SpaceX, and Twitter added. “That is the real problem here.”
US inflation has risen to 40-year highs this year. The inflation is prompting the Fed to boost interest rates from near zero in March to over 4% today. This is to slow the pace of price rises and chill the economy. In addition, higher rates harm asset prices since they encourage saving over consumption and make borrowing more expensive.
In a subsequent tweet, Musk clarified that higher rates increase the yields from low-risk investments like government debt, increasing their appeal compared to riskier assets like equities.
“As the ‘risk-free’ real rate of return from Treasury Bills approaches the much riskier rate of return from stocks, the value of stocks drop,” Musk said. “For example, if T-bills and stocks both had a 10% rate of return, everyone would just buy the former.”
Musk has criticized the Fed for raising rates too quickly this year on many occasions
As they are primarily valued based on their future cash flows, shares of fast-growing firms like Tesla have been struck particularly hard this year. When prices are rising, they can find reliable and safer returns elsewhere. Moreover, a recession is threatening to wipe out their capital. As a result, investors find that potential cash flows less appealing.
For other reasons, the price of Tesla shares has, however, more than half this year. For instance, Musk has cautioned about the decline in the Chinese real estate market and the European energy crisis. They may have an impact on the demand for the company’s vehicles in the months to come.
Furthermore, several Tesla shareholders have expressed worries that Twitter has become an expensive diversion. The tech tycoon has sold approximately $8 billion in Tesla shares in recent weeks. He sold out the percentages to pay off the billions of dollars he took to finance the buyout. He is currently actively restructuring the social network corporation.
Musk has criticized the Fed for raising rates too quickly this year on many occasions. However, he has cautioned that it must reduce rates immediately because they are already “massively amplifying the probability of a severe recession.”
Additionally, he emphasized the risks of debt while interest rates are rising. Finally, musk criticized the central bank for focusing too much on historical economic statistics rather than the present economy.
