Monetary Policy Too Tight: Senior Economists Mohamed El-Erian and Jeremy Siegel: Fed Mistakes Will Go Down in History | newsletter

• Top Economists with Cash monetary policy US Federal Reserve
• Al-Arian and Jeremy Siegel accuse Powell of committing grave errors
• El-Erian: The economic recession could certainly have been avoided.

fight high inflation The US Federal Reserve has already raised interest rates five times this year – and the sixth hike in November is a certainty as well. Many observers are also certain that the US economy will slip into recession due to tight monetary policy. Currency watchers themselves seem aware of this, because according to Allianz Senior Adviser Mohamed El-Erian, the way Fed Chairman Jerome Powell speaks has changed in this regard, because instead of talking about a soft landing of the US economy, he is now talking about the “pain” that you have adapt to it. Al-Arian told CBS that this pain is nothing more than the delay in the Federal Reserve rate. In his view, a recession in the US would have been “completely avoidable” if the Fed had responded earlier and more appropriately.

Al-Arian: The Fed made two big mistakes and risks the third

The chief economist accuses the US monetary authorities surrounding Jerome Powell of making two major mistakes that led to the current situation and, in his opinion, “will go down in the history books”. In an interview with CBS, El-Erian stated that the Fed’s first mistake was to incorrectly describe inflation as temporary. However, the US Federal Reserve has been sticking to the view that inflation is “temporary, reversible, don’t worry,” the expert said. Then the second mistake occurred after that, when the Fed admitted that inflation was “ongoing and high”, but did nothing at first. “They did not act. They did not act wisely,” criticized Allianz’s chief adviser.

According to Mohamed El-Erian, these two big mistakes made by the Federal Reserve that will go down in the history books are currently linked to the risk of a third mistake. Because instead of carefully taking your foot off the gas in 2021, the Fed is now hitting the brakes massively this year – that too “will prove to be a huge policy mistake by the Fed”. If the Fed continues down this path, it will push the US into recession, and El-Erian is certain. “We’re in this amazing situation where good news for the economy is bad news for markets as markets worry that the Fed is going to plunge us into recession by overreacting to strong economic news,” said The Economist at CBS. In his opinion, the question now is not whether inflation will fall, because it will happen, but whether it will come only with an economic slowdown or a major recession. He fears there is a high possibility of a devastating recession that “would have been completely avoidable”.

The Fed needs to restore credibility

Mohamed El-Erian also voiced severe criticism of the Federal Reserve on the SMS service Twitter. “An independent Federal Reserve is critical to the well-being of the US economy. However, this independence becomes more difficult to justify when four major operational failures (analysis, forecasting, action, and communication) are combined with a lack of accountability.” wrote in a tweet.

to independence # keep federation is critical to the welfare of the United States #Economie. Having said that, it becomes more difficult to justify such independence when four major operational errors (analysis, forecasts, actions, and communication) are accompanied by a lack of accountability.

– Mohamed El-Erian (@elerianm) October 17 2022

Thus, the Fed’s current task is not only to repair the damage caused by indecision and to control inflation, but also to restore its reputation and credibility.

Jeremy Siegel accuses the Fed of “bad monetary policy”.

In addition to Al-Arian, Wharton professor Jeremy Siegel has not spared recently Criticism of the US Federal Reserve. He also complained that the Fed should have started tightening too soon and is now slamming the brakes hard in an attempt to make up for the omission. “The last two years [sind] One of the biggest policy mistakes in the Fed’s 110-year history is by surviving when everything was booming,” Siegel told CNBC at the end of September.

The expert continued that if the Fed remains as tight as he says and continues to raise interest rates until early 2023, the risk of a recession is very high. Because that means FSAs will make the same mistake again as they did a year ago, only on the other side. In an interview with CNBC, Siegel criticized: “It was too loose in 2020 and 2021, and now: ‘We’re going to be really strong men until we crush the economy.’ Calling it ‘poor monetary policy’, in his opinion, is an understatement.

finanzen.net editorial office

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