Top economist Mohamed El-Erian is raising doubts when it comes to Fed Chair Jerome Powell’s suggestion that the worst of the banking turmoil is behind us. Following the Fed’s latest rate hike, Powell told reporters that the First Republic-JPMorgan deal was “an important step toward drawing a line under that period of severe stress,” adding that the three banks at the center of the crisis “have now been resolved.” According to El-Erian, more bank failures and a subsequent credit crunch are on the way. “I fear that this may end up being added to the list of unfortunate Federal Reserve communications over the last few years that have eroded the credibility of the Fed,” El-Erian tweeted. While the market expects three rate cuts later this year, Powell stressed that this is not the Fed’s forecast; however, it is also not anticipating any more hikes. “The Fed … is ‘on hold’ as it assesses policy to decide the right policy course,” said Robert Brusca, chief economist at FAO Economics. “Policy is flexible, not fixed.”
Markets Insider/Zinya Salfiti
Mohamed El-Erian slams Powell’s suggestion that the bank turmoil is over – says it could be added to a list of Fed communications that eroded its credibility.
Mohamed El-Erian has raised doubts about Federal Reserve chair Jerome Powell’s suggestion that the worst of the banking turmoil is over, saying it may belong to a list of statements that ended up eroding the institution’s credibility.
The top economist made the remarks after PacWest Bancorp’s shares plunged more than 50% in after-hours trading Wednesday on news it was exploring strategic options including a sale. It is the latest regional bank to be hit by the turmoil that started with Silicon Valley Bank’s collapse in March. Four lenders have folded up so far, with First Republic Bank shutting down earlier this week.
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4 things we learned from Powell’s press conference after latest Fed rate hike
The Federal Reserve on Wednesday raised its benchmark interest rate by 25 basis points, to a range of 5%-5.25%, close to the peak seen just before the Great Recession in 2008.
Beyond that headline, here are key takeaways from Powell’s press conference:
The new forward guidance from the Fed means the central bank is no longer planning or anticipating it will have to hike rates, said Robert Brusca, chief economist at FAO Economics.
“Instead, the Fed is going to watch the economy, the data and inflation and decide the best course of action,” he said, in a note to clients.
Here We Go Again: Troubled California Bank PacWest Craters 60% On Report It Is Seeking Buyers Or Capital Raise
Earlier today, when Jerome Powell openly lied to the American People during the FOMC press conference stating without a hint of irony that the US banking system is “sound and resilient”…
…we balked: how could this former lawyer lie so brazenly to the American people, the narrator wondered, when in just the past few weeks we had seen over half a trillion in bank failures, making the current bank failure episode even worse than the global financial crisis?
Well, as usual, the narrator was right, because while Powell’s lies were still ringing in our ears, the next regional bank collapse was on its say.
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