Yahoo Finance Billionaire real estate magnate Barry Sternlicht slams Fed for ‘arcane’ interest rate hikes, says the real estate market was just ‘collateral damage’ in fight against inflation
Billionaire Barry Sternlicht is calling out the Federal Reserve for wreaking havoc on the real estate market with aggressive interest rate hikes.
Sternlicht, chairman and CEO of global real estate investment firm Starwood Capital Group, thinks the Fed is overstating inflation and hurting real estate, pointing to rent prices that have declined across America.
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"We were minding our own business. Usually, we screw up the global economy — the real estate industry. We overbuild the housing market like we did in the Great Financial Crisis" Sternlicht said in an interview on "In Depth with Graham Bensinger.”
"This time we didn't. We were just collateral damage."
Sternlicht says Fed is using an ‘arcane’ tool
Sternlicht denounced rate hikes as "arcane and not appropriate" for the current economy, pointing to the still-robust job market.
However, he also acknowledged the Fed has no other tool to combat inflation.
"I've been through five or six crises,” he said. “This one feels the worst to me,"
While it’s possible the Fed could start introducing cuts to the key rate as soon as June this year, Fed Chair Jerome Powell has emphasized it will all depend on the incoming data.
Conflicting rent data
Sternlicht criticized the Fed's method of measuring inflation in the housing market, accusing it of using rent data that’s about a year old and recalling when the central bank responded too slowly to burgeoning inflation back in December 2021, despite surging rent prices.
Although Fed data shows U.S. city rent prices steadily climbing, a December Redfin report revealed the median asking rent fell 2% year-over-year in November — the biggest decline since 2020.
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Data from apartment search engine Rent.com also shows rent prices have been trending downward since August 2023, plateauing in the last couple months.
“It’s a huge lag and that angers me to no end,” he said. "I don't know why they don't update the rent data to current data ... Now he's overstating inflation and before he was understating it."
Economists, including Powell himself, are aware of this lag in housing services inflation.
"Housing inflation tends to lag other prices around turning points … because of the slow rate at which the stock of rental leases turns over. The market rate on new leases is a timelier indicator of where overall housing will go over the next year or so," Powell said during a speech at Brookings Institution in 2022.
Still spending like ‘drunken sailors’
Sternlicht believes the federal government continuing to spend heavily is contributing to the inflation problem.
"You have one part of the government with their foot on the brake, the Federal Reserve and Powell, and then you have the other part of the government, the legislature, spending as much money as they can,” Sternlicht said.
“What [Powell] really needs to do is walk across the street and tell Congress to stop spending money like drunken sailors."
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