El-Erian advises US Fed to stop raising interest rates
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| When will US Fed stop raising interest rates? |
Economist Mohamed El-Erian, Chief Economic Adviser at Allianz, stated that the US Federal Reserve is facing a very complicated triple dilemma. Still, this time there is no good policy move that can be taken in light of the repercussions resulting from the banking turmoil.
Al-Erian said that the issue is not just the dilemma of inflation versus growth only, but it is a triple dilemma consisting of three axes:
El-Erian also explained that we do not have a good way out of this dilemma, as every treatment will have collateral damage and unintended consequences.
Mohamed El-Erian advises the Fed that the best measure it can take at the present time is to ease its aggressive campaign to increase interest rates, according to which interest rates rose from zero to 4.75%.
He indicated that this was necessary in order to ensure that the recent effects of the turmoil in the banking sector are gone, El-Erian said:
"I think that the least bad solution is to stop increasing interest rates after the increases that we have seen... and make sure that the financial contagion is overcome, and then try to assess the economic contagion, which is difficult to confront with politics."
As for the economic contagion resulting from the mishandling of the recent interest rate cycle, El-Erian believes that it will be significant.
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