The Fed has come under fire for the way it tackled inflation. Here are the latest critiques from Elon Musk, Mohamed El-Erian and others.

US Federal Reserve Chair Jerome Powell

US Federal Reserve Chair Jerome Powell attends a press conference in Washington, DC, on March 22, 2023.Liu Jie/Xinhua via Getty Images

  • Elon Musk, Jeremy Siegel, Mohamed El-Erian and others have criticized the Fed’s decision-making in recent weeks.

  • The central bank has come under fire for fueling recession risk through aggressive interest-rate hikes meant to tame inflation, after failing to act early on price pressures.

  • Here are some recent critiques of the Fed from high-profile investors, analysts and other experts.

The Federal Reserve has come under much fire for pushing the US economy to the brink of a recession with its war on inflation, after failing to act earlier when the price pressures were still building.

Policymakers led by Jerome Powell dismissed the rise in inflation as “transitory” in 2021, but were forced into a series of sharp interest-rate hikes last year as consumer prices surged at the fastest pace in four decades. The Fed raised rates for a 10th straight time this month despite the rising risk of an economic slump, with the inflation rate still remaining more than twice its 2% target.

That has sparked strident criticism from business moguls such as Elon Musk and economists including Mohamed El-Erian, Jeremy Siegel and David Rosenberg.

Here is a selection of most recent central bank critiques from high-profile business executives, economists and other experts.

Elon Musk, Tesla, Twitter and SpaceX boss

The world’s second-richest person criticized the Fed again this week, saying its delayed reactions to policy challenges mean there probably will be a tough few months ahead for the economy.

“My concern with the way that the Federal Reserve is making decisions is that they are just operating with too much latency,” Musk told CNBC on Tuesday.”Basically, the data is somewhat stale, so the Fed was slow to raise interest rates. And now I think they’re going to be slow to lower them.”

Musk said the Fed’s rate hikes act as a ‘brake pedal’ on the economy, by making a lot of things more expensive – especially those that are typically bought using credit. That has “downstream effects” on everything, he added.

Jeremy Siegel, Wharton professor 

“I actually think the tightening caused by this crisis is equivalent to three or four 25 basis point hikes of the Fed,” Siegel told Fox Business on Monday, referring to a credit squeeze that’s resulted from the recent banking turmoil.

“They’re in dangerous territory of precipitating a recession,” he continued, adding that he was not in favor of the 25-basis-point rate increase implemented by the US central bank earlier this month.

Siegel said the Fed is likely to pause its aggressive monetary policy in June, but there’s still a group of policymakers who want to continue hiking rates “until they smash the economy.” He also called the Fed’s lagged economic data “stale” in what could result in a “severe slowdown and recession if they continue hiking.”

Mohamed El-Erian, chief economic adviser at Allianz 

“We are still in the hospital because there are problems with the banking model of certain banks,” the top economist told Bloomberg on Tuesday, referring to the turmoil faced by small and mid-sized US lenders.”The key issue now is to allow the patients that are in the hospital to come out. If there’s another [Fed] policy mistake, the patient goes back into the ICU,” he added.

To El-Erian, another policy mistake would be for the Fed to push ahead with an aggressive policy stance, chasing its 2% inflation target too quickly. That would also create a “second set of patients,” including non-banks such as businesses tied to the commercial real-estate industry.

He also recently said the discord between the Fed’s policy signals and financial-market expectations is unusual, and could end up sparking a bout of market volatility or eroding the central bank’s credibility.

David Rosenberg, president of Rosenberg Research 

“Market-based odds of a June rate hike now up to 40% – was 30% yesterday and 10% a week ago. It’s obvious now that the Fed intends on keeping at it until the economy shows signs of a real breakdown,” the economist tweeted on Thursday.

Greg Becker, former CEO of Silicon Valley Bank 

SVB had loaded up on long-term bonds during 2020-2021, based on the Fed’s messaging from the period that any spike in inflation would be “transitory” and interest rates would remain low, Becker said in a prepared testimony released ahead of a US Senate Banking Committee hearing Tuesday.

However, Jim Chanos scoffed at SVB’s former chief’s suggestion that a sharp policy change by the Fed was largely responsible for the lender’s shocking collapse in March.

“Of course it’s the Fed’s fault that SVB lent long and borrowed short at all-time lows in rates, violating the Rules of Banking 101,” the famed short-seller and Chanos & Co. boss tweeted on Monday, in a response to Becker’s remarks.

Read the original article on Business Insider

Source link

Leave a Comment