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Credit Suisse is not a ‘Lehman moment,’ but market reaction is worrying, El-Erian says

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Though there are concerns over Credit Suisse’s financial health, the situation is not likely to cause a credit event like the 2008 collapse of Lehman Brothers that set off the worst of the financial crisis and a slew of Wall Street bailouts, according to Mohamed El-Erian. “I do not think this is a Lehman moment,” El-Erian, chief economic adviser to Allianz , said Monday on CNBC’s “Squawk Box.” What is most interesting, he said, is the market’s reaction to the Credit Suisse news. There is anxiety not only about economic issues such as tightening financial conditions, central bank mistakes and a slowing global economy, but also about market functioning. “After years of repressed interest rates, it’s starting to be an issue,” El-Erian said. He also noted that even though stocks were up in early trading, investors should be more cautious about wishing for the Federal Reserve to pivot away from raising interest rates to pausing hikes or even cutting rates. “We have to stop with this love affair with the pivot,” he said. “If the Fed pivots it’s because we’ve had either an economic accident or a market accident – we should not be wishing for that.” What investors should be watching and weighing now is if the Fed can balance controlling inflation, employment and financial stability. “What the UK has told you is keep an eye on the third issue as well, it makes it much harder in terms of what the Fed has to do,” he said, referring to the government’s reversal of cutting a tax on high-earners to quell market volatility. While it was the right decision, he said, it also represented an “embarrassing U-turn” for the government.

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