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Why Elon Cares So Much About Interest Rate Hikes

Date

Elon Musk can't keep his eyes off today's Federal Reserve meeting.

Why does he care so much?

Because it might be the single most critical event to avoid an economic crisis.

Here's the breakdown (and why it matters)...

On December 9th, Elon Musk tweeted:

"If the Fed raises rates again next week, the recession will be greatly amplified."

Everyone thinks the Fed will raise rates by 0.50% today.

Why do this if it means a bigger recession?

Let me break it down in 60 seconds…

Imagine the U.S. economy as a $20 trillion balancing act.

You got a million-variable-algebra equation with no clear solution.

And a government org called The Federal Reserve with only a few tools to solve it.

The main one?

Changing The Fed Funds Rate (FFR)

This is the US economy's "risk-free rate".

And every interest rate is based on it.

That means when the Fed hikes rates..

• Your mortgage

• Your venture debt

• Your company's bonds

Get way more pricey.

Why?

If the "risk-free rate" is 4%, you need to pay someone a higher rate on your mortgage to lend you money.

So, the whole economy moves based on this rate.

Okay so why ever change it?

The Fed Funds Rate is a tool for the government to do 2 things:

• Curb inflation

Higher the rate, people spend less and prices increase slower.

• Create growth

Lower the rate, money is cheaper for everyone to borrow and spend.

Now why is this big news?

8 times a year, the Fed meets to decide rates.

Dec. 14th is one of those meetings.

And for the few years, the Fed Funds Rate was close to 0.

But it just hit 4.0%.

Why?

Because the government printed lots of money during COVID to keep the economy alive.

Too much money printing = inflation too

And..

The way to stop inflation?

Raise rates.

Elon cares so much because when you have low rates, technology stocks are more valuable.

I'll spare you the boring details but it's because tech stocks are valued on creating cash far in the future.

And the lower the rate, the higher their value.

Now…

If you were Elon Musk and you owned a bunch of tech companies:

• Twitter

• Tesla

• SpaceX

Would you want interest rates to be high or low?

Low of course.

Rising rates may help or hurt the economy in the long run.

But all I can tell you is Jerome Powell and The Fed are playing 4D chess and we only have one option:

Watch to see what happens next.

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By opening a Maximum Checking account through Meow and if you choose to receive banking services provided by Grasshopper Bank, N.A, you deposit your funds into a deposit account at Grasshopper Bank, N.A. which sweeps those funds into deposit accounts across a network of FDIC-insured banks, for up to the current SMDIA of $250,000 per eligible depositor, per destination institution, for each ownership capacity or category, subject to applicable terms and conditions Grasshopper's ICS Deposit Placement Agreement. Grasshopper Bank, N.A. uses a third-party vendor and agent to help administer this sweep process. Visit https://www.intrafi.com/network-banks/ for a list of the banks and savings associations with which we/Grasshopper, N.A. have a business relationship for the placement of deposits at destination institutions, and into which your deposits may be placed (subject to applicable terms with you, and any opt-outs by Grasshopper, N.A. or you). The current limit for access to FDIC insurance on your funds through your Maximum Checking account powered by Grasshopper is $125 million, subject to change at any time by Meow. Terms and restrictions apply. Subject to applicable rate sheet. Interest rate on checking products quoted in Annual Percentage Yield (APY). Interest rates and yields are effective as per the date on the rate sheet and are subject to change without notice. See applicable rate sheets. See our Account Agreements and other applicable terms. FDIC insurance is available to bank depositors up to $250,000 per eligible depositor, per FDIC-insured bank, per ownership capacity or category.

If you choose to open a Maximum Checking account powered by Third Coast Bank SSB, you deposit your funds into a deposit account at Third Coast Bank SSB, which sweeps those funds into deposit accounts across a network of Federal Deposit Insurance Corporation (“FDIC”)-insured banks, for up to the current standard maximum deposit insurance amount (“SMDIA”) of $250,000 per eligible depositor, per receiving bank, for each ownership capacity or category, including any other balances you may hold at that receiving bank directly or indirectly through other intermediaries, including broker-dealers. Third Coast Bank SSB uses a third-party vendor and agent to help administer this sweep process. Visit https://www.reichandtang.com/about/bank-lists/ for a list of the banks and savings associations with which we/Third Coast Bank SSB have a business relationship for the placement of deposits at receiving banks, and into which your deposits may be placed (subject to the Account Agreements with you, and any opt-outs by Third Coast Bank or you). The current limit for access to FDIC insurance on your funds through your Maximum Checking account powered by Third Coast Bank is $50 Million, subject to change at any time by Meow.

If you choose to receive banking services provided by FirstBank, a Tennessee corporation, you deposit your funds into a deposit account at FirstBank, which sweeps those funds into deposit accounts across a network of FDIC-insured banks, for up to the current SMDIA of $250,000 per eligible depositor, per destination institution, for each ownership capacity or category, subject to applicable terms and conditions, including FirstBank's ICS Deposit Placement Agreement. FirstBank uses a third-party vendor and agent to help administer this sweep process. Visit IntraFi for a list of the banks and savings associations with which FirstBank has a business relationship for the placement of deposits at destination institutions, and into which your deposits may be placed (subject to applicable terms with you, and any opt-outs by FirstBank or you). The current limit for access to FDIC insurance on your funds through your Maximum Checking account powered by FirstBank is $125 million, subject to change at any time by FirstBank. Interest rates and yields are effective as per the date on the applicable rate sheet (available here) and are subject to change without notice. Refer to the applicable rate sheet for additional information. See our Account Agreements (as defined below) and other applicable terms.

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