Elon Musk: 2023 Recession Will Be Comparable to Financial Crisis of 2008–09

SpaceX founder Elon Musk during an event in Boca Chica Beach, Texas, on Aug. 25, 2022. (Michael Gonzalez/Getty Images)

Elon Musk, the billionaire CEO of Tesla and Twitter, thinks the next recession will be comparable to the global financial crisis of 2008–09.

While speaking during a Twitter Spaces discussion on Dec. 22, Musk acknowledged that while the U.S. economy is currently in a recession, 2023 will result in a “serious” economic downturn.

“It’s going to be, in my opinion, comparable to 2009,” he said. “I don’t know if it’s going to be a little worse or a little better, but I think it’s, in my view, likely to be comparable.”

He said it’s shocking that the nation hasn’t had a significant recession in 13 years, suggesting that the United States is “overdue” for one.

In 2009, the U.S. economy contracted by 2.8 percent.

Because the Federal Reserve relies on an “old-school” method of assessing economic data and reacting to lagging indicators, the U.S. economy will be “in for a hard landing,” Musk said.

Since March, the Federal Open Market Committee has raised the benchmark federal funds rate by 425 basis points, lifting the target rate to its highest level in 15 years.

Federal Reserve Chair Jerome Powell speaks during a news conference in Washington, on Nov. 2, 2022. (Elizabeth Frantz/Reuters)

“The economy right now is like a car,” Musk said. “You’re driving around on a cliffside road, and the Fed is driving it by looking at the rearview mirror. In fact, it’s not even looking at the rearview mirror. It’s looking at a video taken of the rearview mirror that’s like three months old. So obviously, this is not a good way to drive a car on a windy cliff road.

“It’s kind of blowing my mind that the Fed has raised rates so high,” he noted, adding that he doesn’t have a “hotline” to Fed Chair Jerome Powell.

According to the CME FedWatch Tool, the Fed is expected to raise interest rates by just 25 basis points at its first policy meeting next year.

This isn’t the first time Musk has warned about the Fed’s rate hikes and the possibility of a recession.

In a Dec. 9 tweet, Musk projected that “the recession will be greatly amplified” if the central bank pulled the trigger on another rate increase at the December policy meeting.

In a Nov. 30 tweet, Musk expressed concerns over current trends, arguing that the “Fed needs to cut interest rates immediately.”

Musk predicted in October that a global recession would last “until spring of ‘24.”

Nick Reece, portfolio manager at Merk Investments, echoed Musk’s concerns that the Fed’s present stance is keeping the recession risk high.

“The time window for a constructive Fed pivot has likely closed anyway,” he wrote in a research note. However, he noted that bear trends in the financial markets “historically bottom well before recessions end.”

Recession Talk Heating Up

Musk hasn’t been the only one to anticipate a recession.

A recent Bloomberg survey placed the odds of a recession in 2023 at 70 percent, up 10 percent from the previous October poll.

Earlier this month, the National Association for Business Economics (NABE) reported that next year’s chances of a recession top 50 percent, citing a survey of 51 professional forecasters.

“The more subdued outlook coincides with materially higher expectations for interest rates at the end of this year and next,” Dana Peterson, chair of the NABE survey and Conference Board chief economist, said in a statement. “Panelists expect job growth will slow over the first three quarters of 2023 but remain positive.”

The Conference Board’s Leading Economics Index (LEI), which assesses multiple variables, including unemployment, consumption, real estate, and manufacturing, tumbled by 1 percent in November. This was worse than the market estimate of negative 0.4 percent.

“Only stock prices contributed positively to the U.S. LEI in November,” noted Ataman Ozyildirim, the Conference Board’s senior director of economics. “Labor market, manufacturing, and housing indicators all weakened—reflecting serious headwinds to economic growth. Interest rate spread and manufacturing new orders components were essentially unchanged in November, confirming a lack of economic growth momentum in the near term.”

But the Federal Reserve isn’t penciling in a recession.

The central bank’s December Summary of Economic Projections (SEP)—updated from September—forecasted a real GDP growth rate of 0.5 percent in 2023, 1.6 percent in 2024, and 1.8 percent in 2025.

The Fed Bank of Philadelphia’s Fourth Quarter 2022 Survey of Professional Forecasters expects the U.S. economy to avert a recession, with real GDP rising to 0.7 percent next year.

Disinflation and Weakness

The latest data show two trends forming: slowing inflation and weakness in the economy.

The Personal Consumption Expenditures (PCE) price index—the Fed’s preferred inflation measurement—eased to 5.5 percent year over year in November, down from 6.1 percent in October. On a month-over-month basis, the PCE price index rose just 0.1 percent.

Last month, durable goods orders plummeted by 2.1 percent, down from the 0.7 percent gain in October, according to the Census Bureau. This was the biggest drop since February.

Durable goods orders excluding defense declined by 2.6 percent.

Personal spending edged up 0.1 percent in November, down from 0.9 percent in the previous month, according to the Bureau of Economic Analysis (BEA). Personal income increased by 0.4 percent, down from 0.7 percent. The personal savings rate—i.e., personal saving as a percentage of disposable personal income—was just 2.4 percent.

In addition, the University of Michigan’s Consumer Sentiment Index climbed to 59.7 in December, from 56.8 in November.