The Fed is draining the stock market and even the 'healthy fish' will die, billionaire investor Barry Sternlicht says

• The Fed's scramble to hike rates and lower liquidity is draining the stock market, Barry Sternlicht warned.
• The billionaire investor pointed to the Fed's delayed response to inflation, which risks tipping the economy into a recession.

The Fed's scramble to hike rates and kill off inflation is draining the stock market, Barry Sternlicht said on Tuesday, warning that even the "healthy fish" would die as the economy and liquidity start to shrink.

In an interview with Bloomberg, the chairman and CEO of Starwood Capital criticized the Fed for its delayed response to tackling inflation and over-liquid market conditions. Soaring prices have finally prompted the central bank to issue aggressive rate hikes and begin shrinking its balance sheet this year – but the rapid pace of tightening could easily send the economy into a recession, economists have warned.

"Powell is unbelievably late doing this. He sat still while the meme stock craze was going," Sternlicht said, adding that the belated reaction could kill off investors' gains across the entire market.

"There were really smart things that people did, and there were smart fish in the pond. And there were stupid things people did and they were idiot investments. … So you thought the healthy fish would survive and the sick fish would die. But the Fed is draining the entire pond, so everyone's going to die," he said.

His warning echoes that of other experts, who have predicted stocks will crater as the Fed scrambles to tighten the economy. JPMorgan CEO Jamie Dimon warned stocks could fall another 20%, and "Dr. Doom" economist Nouriel Roubini said that stocks could plunge as much as 40%.

Sternlicht added that the Fed could be overtightening the economy by basing rate hikes on the Consumer Price Index, which remains well above the 2% inflation target. But that index lags behind the economy by around 18 months, experts have said, meaning the central bank could be basing its rate-hike decisions on outdated information — and it risks screeching the economy into a downturn.

Currently, the Fed expects to keep hiking until it hits a terminal rate of 4.6%. That's more than a full percentage point above the current fed funds rate, and it could mean the central bank is set to hammer the economy, costing "millions" of jobs around the world, he said.

"I just get so angry when people say the Fed needs credibility to fight inflation. Wait. You'll get what you want. You'll get this recession; it's definitely coming."

But despite anticipated market volatility, he noted long-term investment opportunities could be coming to the surface, as stocks will eventually be discounted and some will be poised to rebound.

"I am personally looking for opportunities that I think represent incredibly compelling long-term investments, and I think you're beginning to see them," Sternlicht added.