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Chamath Palihapitiya, a billionaire venture capitalist, recently shared his views on the US financial system crisis in a new episode of the All-In Podcast.
The billionaire criticized the Federal Reserve’s decision to raise interest rates by 25 basis points, calling it the worst possible option.
He suggested that the Fed should have raised interest rates by 50 basis points, despite the potential panic it might have caused, in order to expose what’s fundamentally broken in the system.
Palihapitiya emphasized that the Fed can handle the chaos that comes with imposing higher interest rates, but they don’t have the appropriate tools to handle inflation running amok.
He believes that the Fed’s current ambivalence to take interest rates higher could actually hurt the economy. Palihapitiya called for interest rates to be greater than terminal inflation, which means a 5% Fed funds rate is insufficient.
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He suggested that a print of 5.5% to 5.75% is necessary for enough contraction, after which the Fed can come back with liquidity to solve the problem.
Palihapitiya further elaborated that a failure to take these steps could lead to uncertainty, which has corrosive effects on lending and risk-taking, ultimately causing real damage to the economy.
He emphasized the need to acknowledge the sticky inflation problem and take decisive actions to break its back.