Elon Musk has a new arch-enemy: the Fed

Fed Chair Jerome Powell and Elon Musk. Erika Ramirez/Insider

• Elon Musk blasted the Fed's rapid rate hikes after Tesla blamed a strong dollar for missing sales forecasts.
• The CEO said the US central bank is looking backwards and will eventually realize its mistake.
• A Fed reversal could boost Tesla's sales and profits, and lift the value of Musk's shares.

Elon Musk has a new nemesis in the Federal Reserve.

The Tesla CEO has slammed the US central bank for soldiering on with interest-rate hikes, despite what he considers growing signs the inflation threat is fading. The comments came after the electric carmaker blamed a historically strong dollar for a quarterly sales miss, and said the currency movements cost it $250 million in operating income.

"The Fed is raising rates more than they should," Musk said during the automaker's third-quarter earnings call on Wednesday. "But I think they'll eventually realize that and bring it back down again."

Fed Chair Jerome Powell and his colleagues have lifted rates from almost zero in March to a range of 3% and 3.25% today, and signaled they could approach 5% next year. The hikes are intended to curb inflation, which surged to a 40-year high of 9.1% in June, and remained above 8% in September.

Musk suggested the central bank is overly focused on how much prices have surged over the past year, instead of paying attention to what's happening now. He pointed out that copper and other commodities have retreated from their highs earlier this year, and Tesla is seeing more deflation than inflation.

"The Fed is not listening, because they're looking at the rearview mirror instead of looking out the front windshield," Musk said on the call.

Yet it's worth emphasizing that Tesla stands to benefit if the Fed changes course and starts cutting rates once again, since that would weaken the dollar and lower borrowing costs. After all, the central bank's hikes have boosted the US dollar to a 20-year high against other major currencies this year, which diluted the value of Tesla's overseas sales last quarter, and contributed to it falling short of Wall Street's expectations.

Additionally, if the Fed start loosening its monetary policy, that type of economic stimulus would likely juice Tesla's vehicle sales.

"Demand is a little harder that it would otherwise be," Musk said on the call after bemoaning the pace of rate increases this year.

Lastly, pausing hikes or reducing rates could reinvigorate the stock market and boost Tesla shares, which have plunged 48% this year. A higher stock price would make it easier for Musk to raise any more cash he needs to close his Twitter acquisition.

Perhaps unsurprisingly, Musk has been complaining about the Fed's inflation fight for a while, saying its officials are overly concerned with lagging economic indicators.

"There is too much latency in Fed decisions," he tweeted in September. "Problematic in a fast-changing world."

He also endorsed Wharton professor Jeremy Siegel's critique that the Fed failed to nip inflation in the bud, and now it's going overboard with rate hikes, risking an unnecessarily harsh recession.

"Siegel is obviously correct," Musk said.

Whether Musk is genuinely worried about an overzealous Fed choking economic growth and driving up unemployment, or stressing about the impact of higher rates on Tesla's sales and the value of his shares, it's clear he has a new enemy in his sights.

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