October 6, 2022


  • The Fed raised interest rates by 75 basis points on Wednesday, marking the third consecutive rate hike.
  • That signaled more price hikes to tame inflation, but the move risks tipping the economy into recession.
  • El-Erian said larger, faster increases and increased risks of recession could have been avoided.

Higher interest rates that are rising faster and lasting longer, as well as the increased risk of an economic recession, could have been avoided if the Federal Reserve had acted earlier to curb inflation, top economist Mohamed El-Erian said Wednesday.

Then came his comments Fed on Wednesday it raised interest rates by 0.75 percentage points for the third time in a row to tame rising prices. Higher interest rates discourage borrowing, cooling demand across the economy, but the move risks slowing growth so much that the economy could slide into recession.

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

Fed has already raised rates five times this year, with larger increases occurring at a faster pace over the months as they race to contain inflation, which hit a 40-year high of 9.1% in June. Inflation cooled in the following months, but was still high at 8.3% in August.

“Instead of leading the markets in the fight against inflation, the Fed was forced to follow them,” El-Erian wrote in a separate opinion piece for CNN published on Wednesday ahead of the central bank’s rate announcement. “However, because it was so late to respond, the Fed will move aggressively to weaken the domestic and global economy.”

The situation has caused many to lose faith in the central bank, and there is a risk that politicians, businesses and households will think of the Fed “as part of the problem rather than part of the solution,” added El-Erian, who is the chief adviser Allianz and President of Queens’ College at the University of Cambridge in Great Britain. He was previously CEO of the US bond giant Pimco.

“There are a growing number of economists who warn that the Fed will lead the US into recession; and a growing number of foreign policymakers who complain that the world’s most powerful and systemically important central bank is pulling the rug out from under an already fragile global economy,” he wrote on CNN .

Jerome Powell, the current Fed chairman, admitted at a congressional hearing in March that the central bank should have acted sooner.

“Hindsight says we should have moved earlier,” Powell said Bloomberg. “It’s just taking a lot longer for the supply side to heal than we thought.”

Last month, Powell warned that cooling inflation “will hurt households and businesses.”

The Fed did not respond to Insider’s request for comment sent after regular business hours.





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