Barry Sternlicht Thinks a Recession Is Coming In Q4

The Fed’s recent series of aggressive rate hikes has the economy “braking hard,” making a recession imminent by the end of the year, the chairman and CEO of Starwood Capital Group told CNBC this week.

“They’re attacking the economy with a sledgehammer and they don’t need to,” Barry Sternlicht told CNBC’s Squawk Box.

An additional rate hike of 75 basis points is expected next week as the Fed adheres to hawkish policies it believes will curb inflation. But “the economy if you look anywhere is already slowing,” Sternlicht said. ”Consumer confidence is terrible — and where will that show up/? It’ll show up at Christmas…half of people will spend less this year on goods than they did last yer. Twenty percent will spend 50% less than they did last year. And they’re doing that against piling-up inventories.”

The most recent consumer price index numbers released this week showed that prices actually rose 0.1% instead of declining as expected on the heels of the Fed’s most recent rate hike.  But Sternlicht believes things are actually, in fact, worse than they seem, noting that “CPI data is old data.”

“They call us, they call CoStar, they call anyone in real estate and they can get the real-time data where it is rolling over,” he says.

And while supply chain issues that pent up during lockdowns largely seem to be resolving, Sternlicht says companies bought goods “thinking the pandemic behavior would last forever and they were going to buy everything in sight.” That inventory is now piling up in warehouses, leading to retailers like Target posting worse-than-expected earnings after clearing a glut of inventory.

“I think the whole dialogue is wrong. I don’t think we need 2% inflation,” Sternlicht told CNBC, adding that he thinks inflation should run between 3 and 4%. “Inflation that’s triggered by wage growth is fabulous. We should want wages to go up. That’ll help social issues in the US – it’s the trickle-down we’ve all been waiting for.”

He also predicts a “major crash” in the housing market, noting that prices are slumping and that the number of new home sales is at its lowest point since 1952. Marcus & Millichap data shows that inventory hasn’t been at the current level since November 2020, and home purchases in July were down 19 percent year-over-year, the sixth consecutive month of decline. The median price of an existing home also fell for a second straight month in July to $394,400.