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Barry Sternlicht says Fed's 'toolkit is flawed' for the economy, urges Fed to cut rates

Written by Joy Wiltermuth

Starwood Property Trust CEO says local banks and cities are spooked by commercial real estate wobbles

“This economy is not your grandma's economy.” Barry Sternlicht, Chairman and CEO, Starwood Property Trust

That's real estate mogul Barry Sternlicht, chairman and CEO of Starwood Property Trust, who believes the Federal Reserve has the right “toolkit” to adequately control inflation through higher interest rates in this economy. He said he doesn't have one.

“His tools, his toolkit, are flawed, so he has to be very careful,” Sternlicht said on Starwood's (STWD) first-quarter earnings call Wednesday, adding that he has to be very careful about his tools, his toolkit. – Urged Chairman Powell to lower interest rates before the November election.

“The economy has not performed as well as we expected. This is a cave,” he said. “And it's very simple, the reason Americans have jobs is their balance sheets are fixed. They have fixed-rate mortgages. They have money market accounts. They earn $235 billion in interest at 5% interest on the cash they hold.

But cracks are beginning to appear in consumer confidence following the Federal Reserve's most aggressive interest rate hikes since the 1980s. But Sternlicht believes the “biggest victim” of rising interest rates is the federal government, whose interest spending has nearly doubled to $1 trillion since 2020.

Local banks are also victims of other “collateral damage,” with interest rate hikes “disrupting commercial asset valuations across the country and around the world,” Sternlicht said.

Spillovers are not “just an academic thing,” he says. “Because cities and local governments rely on property taxes from these commercial properties to run their schools, police departments, waste management, and all the other services they provide to their communities.”

On a brighter note, Sternlicht touted innovation and new announcements from Metaplatforms Inc. (META) and Microsoft Corp. (MSFT) regarding data center construction, an area in which Starwood is “very active.” It pointed out.

Read: AI is fueling a gold rush in real estate’s most sought-after building: new data centers

On Wednesday, Starwood stock rose 2.7% and the Dow Jones Industrial Average DJIA rose 0.4%, extending its longest winning streak of the year. The S&P 500 Index SPX ended unchanged, while the Nasdaq Composite Index COMP fell 0.2%, according to FactSet.

-Joy Wiltermuth

This content was generated by MarketWatch, a Dow Jones Company. MarketWatch is published independently of the Dow Jones Newswires and the Wall Street Journal.

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05/08/24 1645ET

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2/ https://www.morningstar.com/news/marketwatch/20240508501/barry-sternlicht-says-the-feds-tool-kit-is-flawed-for-this-economy-urges-fed-rate-cuts

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