Project SyndicateProject Syndicate

The Fed’s credibility problem

By Mohamed A. El-Erian

03 Apr 2023 · 3 min read

Editor's Note

The global economy's single most important institution has lost its way, Mohamed A. El-Erian argues in PS. To end its long list of failures, the Fed must urgently address two structural deficiencies.

CAMBRIDGE – Reacting to Silicon Valley Bank’s sudden collapse, André Esteves, a senior Brazilian banking executive, recently told Bloomberg that “SVB’s interest rate risk would’ve been obvious to any banking intern in Latin America.” To some, this remark will sound rather rich coming from a region that has had no shortage of banking-sector problems. Nonetheless, Esteves’s sentiment is revealing, because it reflects mounting concerns around the world about the US Federal Reserve’s policymaking and its adverse spillover effects on other countries.

There are good reasons to be concerned. Just in the last three years, the Fed has mishandled its interest-rate hiking cycle, faced insider-trading allegations, stumbled in its supervision of banks, and, through inconsistent communication, fueled rather than calmed market volatility on several occasions.

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