FTXO - Mohamed El-Erian: Fed should pause after 'mishandled' interest rate hikes and bank failures

2023-03-27 16:31:00 ET

Criticizing the Federal Reserve's delayed action to control inflation, former PIMCO chief Mohamed El-Erian said Monday that the central bank's "least bad" option is now to pause its interest rate increases. He argued that this way, policymakers can ensure that the potential contagion from the recent string of bank failures has passed.

"The degree of economic contagion that resulted from this mishandled interest rate cycle is going to be significant because there are two different drivers here. One is banks themselves getting more conservative and two is banks expecting regulation to get tighter," El-Erian told CNBC. "The regulators and the supervisors have been embarrassed and the response has always been tighter in regulation even though this is a failure of supervision more than a failure of regulation."

Asked about the European banks given the developments over the weekend at Deutsche Bank ( DB ), Allianz's chief economist said he is not concerned about the banks in that region as long as they don't keep importing instability from the U.S.

Looking at Monday's action in the stock market, the S&P 500 ( NYSEARCA: SPY ) ( SP500 ) closed +0.2% , the Nasdaq ( COMP.IND ) finished -0.5% and the Dow ( DJI ) +0.6% .

Banking ETFs ended higher in Monday's trading following rebounds in regional banks : The iShares U.S. Regional Banks ETF ( IAT ) +2.3% , the SPDR S&P Regional Banking ETF ( KRE ) +0.9% , Invesco KBW Regional Banking ETF ( KBWB ) +2.5% , First Trust Nasdaq Bank ETF ( FTXO ) +3.2% and SPDR S&P Regional Banking ETF ( KBE ) +2.2% .

For more on banking crisis, see why Seeking Alpha contributor Fear and Greed Trader says, "The recent Silicon Valley Bank failure is going to have more ramifications on the economy and investment scene than some realize ."

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