December 8, 2022

  • The Federal Reserve raised interest rates by 75 basis points on Wednesday, marking the third consecutive rate hike.
  • It has signaled more increases in the future to tame inflation, but the move risks tipping the economy into recession.
  • El-Erian said higher, faster increases and higher recession risks could have been avoided.

Chief Economist Mohamed El-Erian said, on Wednesday, that high interest rates that rise faster and last longer, as well as the high risks of an economic recession, could have been avoided if the Federal Reserve acted urgently to curb inflation.

His comments came after that Fed On Wednesday, it raised interest rates by 0.75 percentage points for the third time in a row to tame price hikes. Higher interest rates discourage borrowing, thus dampening demand throughout the economy, but the move risks slowing growth to the point that the economy could slip into recession.

“Rates are going up, faster and staying there longer,” El-Erian wrote in a tweet Wednesday after the Fed rate decision was announced and the higher risks of recession could have been avoided had the Fed responded in time to cool inflation. .

Fed It has already raised interest rates five times this year, with larger increases occurring at a faster pace over the months, as it races to suppress inflation, which hit a 40-year high of 9.1% in June. Inflation subsided in the following months, but remained elevated at 8.3% in August.

“Instead of leading the markets in the fight against inflation, the Fed has been forced to follow suit,” El-Erian wrote in a separate letter. Opinion article for CNN It was published on Wednesday ahead of the central bank’s interest rate announcement. “However, because it is late in responding, the Fed will turn aggressively towards a weak domestic and global economy.”

El-Erian added, that the situation has caused a lot of confidence to be lost in the central bank, and there is a risk that politicians, businesses and families may think of the Fed “as part of the problem and not part of the solution.” Senior Adviser to Allianz and President of Queen’s College, University of Cambridge, UK. Previously, he was CEO of US bond fund giant Pimco.

A growing number of economists are warning that the Fed will push the US into recession; a growing number of foreign policymakers are complaining that the world’s strongest and most systemically important central bank is pulling the rug out from under an already fragile global economy. CNN.

Jerome Powell, the current chair of the Federal Reserve, admitted at a congressional hearing in March that the central bank should have acted earlier.

“Hindsight says we should have moved earlier,” Powell said. Bloomberg. “The recovery of the supply side is taking much longer than we thought.”

Powell warned last month that slowing inflation “will bring some pain to households and businesses.”

The Fed did not respond to an Insider’s request for comment, which was sent outside normal business hours.

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