Barry Sternlicht Calls Federal Reserve’s Actions “Suicide”

Barry Sternlicht unleashed his contempt for the actions of the Federal Reserve during an interview Thursday.

On CNBC’s “Squawk Box,” the Starwood Capital Group CEO said the Fed’s actions were “clearly suicide” for the economy.  The Fed has been raising interest rates quickly in an effort to clamp down on inflation, a decision proving to be critical throughout real estate.

Sternlicht lamented the destruction of wealth, noting capital movement away from investments in new plants and equipment will cause the economy to pull back.

“It’s going to slow the economy, it cannot do anything other than that,” he said.

Sternlicht also warned the full effect of the rate hikes wouldn’t be felt until next year. Companies will reduce budgets for 2023 due to concerns about consumer weakness and a recession, he suggested.

During his company’s third quarter earnings call last week, Sternlicht assured investors that Starwood Property Trust was being extra careful in the midst of a “financial hurricane.”

“Given the craziness of the Fed, nobody knows what to do, so the banks are not only not lending, but they’re reluctant to do anything,” Sternlicht stated. “Frankly, that creates unbelievable opportunities for companies like us.”

The real estate investment trust was set to have $1.3 billion in dry powder on hand once a $600 million loan closed, the most liquidity the REIT has ever reported, according to its chief financial officer. Starwood reported $194.6 million in third quarter earnings, up more than 50 percent year-over-year. The REIT also reported $390.5 million in revenue, a 30 percent increase from last year’s third quarter.

While the interest rate hikes haven’t hurt the bottom line of Sternlicht’s REIT yet, the Fed may not be finished taking action. At the beginning of the month, it approved a fourth straight 75-basis-point hike to a target range of 3.75 to 4 percent, elevating short-term borrowing rates to their highest levels since 2008.

The Fed indicated smaller rate hikes could be on the horizon.

— Holden Walter-Warner

Contact Holden Walter-Warner