U.S. Treasury Secretary Janet Yellen and business magnate Elon Musk warn the U.S. economy is at risk of a severe recession. Despite recent inflation and jobs data indicating less probability of a recession, Janet Yellen believes high interest rates put recession at increased risk. Meanwhile, Elon Musk asserts severe recession could exist for many months and cause companies to do huge cost-cutting.
Janet Yellen and Elon Musk Warn Recession in 2023?
Treasury Secretary Janet Yellen in an interview on January 27 said the risk of a recession still persists despite better inflation and jobs data, reported Bloomberg. She believes the Federal Reserve will continue raising interest rates and high interest rates increase recession fears.
U.S. Q4 GDP report also comes in at 2.9% against the expected 2.6% indicating a decline a recession fears and cooling inflation. However, consumer and business spending dropped in December due to higher interest rates that impact purchasing power.
“I’m reasonably satisfied by the data that I’ve seen so far, but I don’t want to minimize the risk of recession, given the Federal Reserve is slowing down the economy.”
She believes maintaining a strong labor market while bringing inflation down indicates a slowdown in economic growth.
Meanwhile, Elon Musk has continuously warned the Federal Reserve of the increasing risks of recession with its hawkish rate hike approach. The Fed announces a 50 bps rate hike in the last FOMC meeting, after four consecutive 75 bps rate hikes.
Musk plans to reduce costs on everything related to Tesla to deal with a recession despite a strong Q4 earnings report. He believes companies will continue to layoffs and cost-cutting due to high interest rates.
Moreover, JPMorgan CEO Jamie Dimon expects interest rates to go beyond 5% as inflation remains high. According to CME FedWatch Tool, the probability of a 25 bps rate hike is 98.4%.
Impact on Crypto Market
The crypto market risks falling during a recession. The recent layoffs by crypto companies have impacted investor confidence. Despite the rising adoption of cryptos like Bitcoin and Ethereum (ETH), these coins remain the most volatile and traders will anticipate more downfall in crypto prices.
Bitcoin price is trading near $23,000 and Ethereum price trades at $1,592. Both major cryptocurrencies are trading sideways ahead of the Fed rate hike decision on February 1.
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