Inflation in U.S. might flip unfavorable by midyear, says billionaire investor Barry Sternlicht. A threat is that the Fed will hold lifting rates of interest anyway.

‘Inflation will go negative in May or June, because the housing equivalent number is pointing positive. The risk is [that Fed chief Jerome Powell] keeps going.’

— Barry Sternlicht, CEO, Starwood Capital Group

Billionaire Barry Sternlicht, the chief government officer and chairman of property investor Starwood Capital Group, expects the U.S. financial system to slip into recession within the third or fourth quarter of 2023 because of the Federal Reserve’s inflation-fighting interest-rate hikes, even because the inflation charge, he mentioned, might enter unfavorable territory by midyear.

In an interview with CNBC’s “Squawk Box” on Thursday, the billionaire investor mentioned housing prices, inflation’s largest part, might ease this yr, which might assist convey the inflation charge right down to the two% degree lengthy focused by the Federal Reserve, and the patron value index might even present costs in decline in May or June.

MarketWatch reported earlier this month that economists at Goldman Sachs see the core charge of inflation falling quicker than anticipated as asking rents for residences fall, primarily based on month-to-month leasing exercise since 2021. However, the central financial institution’s “official” annual measure of hire — shelter prices — stays elevated. The price of shelter, which is the only largest part of the CPI, jumped 0.8% in December, whereas its yearly improve rose to a brand new 40-year excessive of seven.5% from 7.1%, the Bureau of Labor Statistics reported. 

Sternlicht warned final yr that the worldwide financial system would “crumble” if the U.S. central financial institution doesn’t cease elevating rates of interest. He additionally mentioned the Fed ought to pause to evaluate how its interest-rate hikes are impacting the financial system because the financial institution has executed “enough” to curb inflation. The Fed has delivered seven consecutive charge rises for 2022 to raise the goal vary for the federal funds charge to 4.25% to 4.5%, the best focused fed funds charge since 2007. 

Earlier this week, Cathie Wood, CEO of Ark Investment Management, mentioned in her firm’s 2023 market outlook that inflation will ultimately come right down to the two% degree and predicted that it might go unfavorable because of the ongoing contraction within the cash provide. 

U.S. inventory indexes completed greater on Thursday after after the GDP report confirmed fourth-quarter U.S. financial development was barely stronger than economists had anticipated, boosting Wall Street optimism in regards to the outlook for the financial system. The Dow Jones Industrial Average
ended up 0.6%, whereas the S&P 500
rose 1.1% and the Nasdaq Composite
gained 1.8%.