Inflation in U.S. could turn negative by midyear, says billionaire investor Barry Sternlicht. A risk is that the Fed will keep lifting interest rates anyway.

‘Inflation will go negative in May or June, because the housing equivalent number is pointing positive. The risk is [that Fed chief Jerome Powell] keeps going.’

— Barry Sternlicht, CEO, Starwood Capital Group

Billionaire Barry Sternlicht, the chief executive officer and chairman of property investor Starwood Capital Group, expects the U.S. economy to slide into recession in the third or fourth quarter of 2023 due to the Federal Reserve’s inflation-fighting interest-rate hikes, even as the inflation rate, he said, could enter negative territory by midyear.

In an interview with CNBC’s “Squawk Box” on Thursday, the billionaire investor said housing costs, inflation’s biggest component, could ease this year, which would help bring the inflation rate down to the 2% level long targeted by the Federal Reserve, and the consumer price index could even show prices in decline in May or June.

MarketWatch reported earlier this month that economists at Goldman Sachs see the core rate of inflation falling faster than anticipated as asking rents for apartments fall, based on monthly leasing activity since 2021. However, the central bank’s “official” annual measure of rent — shelter costs — remains elevated. The cost of shelter, which is the single biggest component of the CPI, jumped 0.8% in December, while its yearly increase rose to a new 40-year high of 7.5% from 7.1%, the Bureau of Labor Statistics reported. 

Sternlicht warned last year that the global economy would “crumble” if the U.S. central bank doesn’t stop raising interest rates. He also said the Fed should pause to assess how its interest-rate hikes are impacting the economy as the bank has done “enough” to curb inflation. The Fed has delivered seven consecutive rate rises for 2022 to lift the target range for the federal funds rate to 4.25% to 4.5%, the highest targeted fed funds rate since 2007. 

Earlier this week, Cathie Wood, CEO of Ark Investment Management, said in her company’s 2023 market outlook that inflation will eventually come down to the 2% level and predicted that it could go negative due to the ongoing contraction in the money supply. 

U.S. stock indexes finished higher on Thursday after after the GDP report showed fourth-quarter U.S. economic growth was slightly stronger than economists had anticipated, boosting Wall Street optimism about the outlook for the economy. The Dow Jones Industrial Average
ended up 0.6%, while the S&P 500
rose 1.1% and the Nasdaq Composite
gained 1.8%.