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Elon Musk Fires Off A Warning Of A Financial Crisis As First Republic Bank Falls 

The Federal Reserve is poised to for another hike in the interest rate as Musk warns of a possible recession in the coming future.

The Federal Reserve’s monetary policy-setting arm, the Federal Open Market Committee, is set to meet for two days beginning this Tuesday. Ahead of the meeting, Tesla CEO Elon Musk reiterated his worries concerning the ramifications of another rate hike by the central bank.

The data that the Fed uses has too much latency, Musk tweeted on Sunday, adding that a “mild recession is already here.”

Jamie Dimon, CEO of JPMorgan Chase, is sworn in during the Senate Banking, Housing, and Urban Affairs Committee hearing titled Annual Oversight of the Nations Largest Banks, in Hart Building on Thursday, September 22, 2022. JPMorgan Chase bought First Republic Bank, second bank that the company bought since Washington Mutual in 2008. TOM WILLIAMS/BENZINGA

The billionaire entrepreneur referred to the recent banking crisis, which resulted in the shuttering of the Silicon Valley Bank and also the bailout of the Swiss investment bank Credit Suisse Group AG.

“It’s not like just the canary in the coal mine (SVB) died, one of the staunchest miners (Credit Suisse) died too & the cemetery is filling up fast!” he wrote.

Musk also raised the specter of a severe recession. “Further rate hikes will trigger [a] severe recession. Mark my words,” he tweeted.

The futures currently price in an 83.9% probability of a hike of 25 basis points, which would take the fed funds rates to 5 – 5.25%. Recent inflation data has shown softening of pricing pressure, although it is still at levels that could cause discomfort to the Fed.

In a recent interview, former Treasury Secretary Larry Summers pointed to the employment cost index, which rose 4.8% year-over-year in the first quarter. The figure, which economists consider the best measure of wage inflation, is way off the Fed’s 2% target, he said, adding that he sees a stagflation ahead.

More importantly, the banking crisis is continuing to grow more legs. First Republic Bank, another regional bank, is teetering on the brink, with rife speculation that the Federal Deposit Insurance Corporation will place it under receivership and sell it as early as this weekend.

The banking crisis has been blamed on a string of Fed rate hikes, which have eroded much of the value of Treasury bonds held by these banks in their balance sheets.

First Republic Bank was closed on Monday as it was taken over by the FDIC after a month it received a $30 billion deposit from the top banks to prevent a possible collapse. JPMorgan Chase had bought the bank’s assets and deposits as shares for First Republic Bank closed at $3.51 in share price.

Musk had set up Twitter on a banking platform as TaaPS (Twitter As A Payment Service), that included having a checking and savings account including a certificate of deposit.

He also co-founded PayPal early in his entrepreneurial career.

First Republic Bank is the second failed bank bought by JPMorgan Chase since purchasing the banking operations of Washington Mutual in 2008. As it is the fourth bank failure in 2023 that included Silicon Valley Bank, Signature Bank, and Silvergate Bank. 

Silicon Valley Bank was bought by First Citizens Bank.

Produced in association with Benzinga

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