Sternlicht Says Market Waiting On Fed To 'Relent,' Warns Of Long-Term Interest Rate Fallout
Starwood Property Trust CEO Barry Sternlicht, long a critic of the Federal Reserve's tight monetary policy, blasted the central bank and Fed Chairman Jerome Powell again during the company's first-quarter earnings call on Wednesday, which reported that Starwood beat earnings expectations.
On the call, Sternlicht characterized persistent high interest rates as a threat to regional banks, residential sector development and the long-term health of the U.S. economy.
He didn't make a specific prediction about when rates might come down, but he did say “Everybody's waiting for Powell to relent.“
“If you think of the regional banks that are levered maybe eight-to-one, you wonder what's going on,” Sternlicht said. “How could they not be experiencing larger losses, certainly in the office portfolios? It wouldn't take much to wipe out an eight-to-one leverage book.”
Powell is “looking out of the corner of his eye” at the regional banking system, Sternlicht said, and the best way to get capital into those banks is to lower rates as a kind of backdoor bailout.
On the whole, Sternlicht affirmed his long-standing criticism that Fed policy harms the economy more than a slightly higher rate of inflation than the Fed's 2% target.
“The Fed has the wrong toolkit for this economy,” Sternlicht said. “The faster they realize that, the better off the banking system and real estate will be. Interest rates at this level haven't slowed job growth in many industries.”
Sternlicht pointed out that construction, typically the first industry to see job cuts when interest rates spike, has actually seen job increases, primarily spurred by government policy supporting infrastructure and advanced manufacturing. Healthcare is another industry that is interest-rate insensitive when it comes to hiring, he said.
High rates have worsened the housing shortage by slowing down residential construction, which is only going to add to inflation as shelter costs rise in response to a tight supply, Sternlicht said.
“If [Powell] wants to solve inflation, he should look a year and a half down the road at the ever-larger deficit of homes he's creating as builders don't build, and then prices will accelerate and take off again because he's creating a shortage of housing,” Sternlicht said.
He also cited the swelling interest payments that the federal government must pay in its debt as a long-term threat to the economy. “The biggest victim” of higher rates is the federal government, Sternlicht said, with interest payments now exceeding $1.5T annually.
Starwood Property Trust turned in earnings of 59 cents per share for Q1, up from 49 cents per share for the same quarter a year earlier. Revenue for the period came in at about $523M, primarily driven by interest income from loans and investment securities. The company's stock was up about 1.3% on Wednesday and is up roughly 18.2% compared with a year ago.
