'Too much latency': Elon Musk slams the Fed for reacting too slowly to economic challenges

Elon Musk

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• Elon Musk slammed the Fed for operating with too much 'latency' in adjusting its policy to evolving economic circumstances.
• The Fed was slow to raise interest rates, and now they're going to be slow to lower them, Musk said. 
• "You can think of raising the Fed rate as somewhat of a brake pedal on the economy, frankly," he added.

The Federal Reserve's delayed reactions to policy challenges mean there probably will be a tough few months ahead for the economy, Elon Musk has said.

"So my concern with the way that the Federal Reserve is making decisions is that they are just operating with too much latency," Musk said in an interview with CNBC during Tesla's annual shareholder meeting in Texas on Tuesday. 

"Basically, the data is somewhat stale, so the Federal Reserve was slow to raise interest rates. And now I think they're going to be slow to lower them," the Tesla, Twitter and SpaceX boss added. 

The technology billionaire has repeatedly warned that the Fed's aggressive interest-rate hikes over the past year are choking the economy and threatening to send it into a downward spiral.

The US central bank has boosted benchmark rates from near-zero last March to upward of 5% today in an effort to control inflation.

The central bank's interest-rate increases act as a 'brake pedal' on the economy, by making a lot of things more expensive - especially those that are typically bought using credit, Musk said. That has "downstream effects" on everything, according to him.

"You can think of raising the Fed rate as somewhat of a brake pedal on the economy, frankly," Musk told CNBC.

He has previously suggested Fed Chair Jerome Powell and his colleagues are too busy looking in the "rearview mirror" - focusing on lagging economic data - to realize the inflation threat has faded and the economy is cooling fast.

Higher rates help to curb the pace of price increases by making borrowing more expensive, and encouraging saving over spending. However, they can also sap demand in the economy, and drag down the prices of stocks, houses, and other assets. As a result, they can contribute to higher unemployment and an economic downturn.

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