Elon Musk says interest rate hikes are causing an increase in deposit outflows

Updated: 24 March 2023

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The CEO of Twitter, Elon Musk, has called out the US Federal Reserve for raising interest rates. Musk noted that an increase in deposit outflows was caused by investors shifting their money from low-interest savings accounts to money market accounts offering high interest rates.

Twitter CEO concerned about interest rate hikes

On March 23, the CEO of Twitter responded to a Twitter post on the Fed Chair’s remarks that the banking system was safe. In the post, Musk said that an increase in deposit outflows was caused by investors moving their money from saving accounts charging low-interest rates.

A major driver of depositor flight is people moving money from low interest savings accounts to high interest money market (Treasury Bill) accounts.

This foolish rate hike will worsen depositor flight.

— Elon Musk (@elonmusk) March 22, 2023

“A major driver of depositor flight is people moving money from low-interest savings accounts to high interest money market (Treasury Bill) accounts. This foolish rate hike will worsen depositor flight,” Musk’s tweet said.

Musk’s tweet responded to a post published by the founder of Dogecoin, Shibetoshi Nakamoto. The developer had said there was only one bank in the financial sector, and the bank had infinite money, meaning everything was cool. The post was likely about the possibility of the Fed printing more money amid the turmoil in the banking industry.

The Fed increased interest rates in the recent Federal Open Market Committee by 25 basis points. The Fed raised interest rates despite speculations that it would pause because of the collapse of three banks in the US: Silvergate, Silicon Valley Bank, and Signature Bank. The Fed Chair, Jerome Powell, said that the measures taken by the US Treasury and the Federal Deposit Insurance Corporation proved that savings were safe.

Musk later responded to a tweet from the official account of the US President. The US President had remarked on the efforts made by his administration to tackle climate change. However, Musk noted that there were major issues to be addressed in the banking sector. “Umm… the banks are melting,” Musk said.

Umm … the banks are melting

— Elon Musk (@elonmusk) March 23, 2023

Before this week’s FOMC policy meeting, Musk had urged the Federal Reserve to trim interest rates by at least 50 basis points. Musk appeared to agree with claims that the monetary tightening caused the recent turmoil in the banking sector.

Fed needs to drop the rate by at least 50bps on Wednesday

— Elon Musk (@elonmusk) March 21, 2023

Interest rate hike amid banking turmoil

The Federal Reserve started hiking interest rates early last year to tame inflation levels in the US that had increased to a 40-year high. However, the Fed might consider relaxing the interest rate hikes because of the recent turmoil in the sector.

Earlier this month, two of the largest lenders in the US, Silicon Valley Bank and Signature Bank, were shut down by regulators. The collapse of the banks triggered a plunge in bank stocks. The situation also worsened with one of Switzerland’s largest lenders, Credit Suisse, acquired by UBS Group last weekend.

However, Powell does not attribute the collapse of SVB and Signature Bank to the interest rate hikes. On Wednesday, he expressed confidence in the US financial sector’s stability, saying that his deposit flow level had stabilized over the past week. He also noted that SVB’s collapse was caused by poor management.

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