Fed and Peers Must Halt Rate Hikes to Avert Crisis, Nielsen Says

(Bloomberg) — Global central banks from the US to the euro zone should jointly commit to avoid further interest-rate hikes until market stability has been assured, UniCredit economist Erik Nielsen wrote on Sunday.

Most Read from Bloomberg

“A litany of policy mistakes has brought the western world to the brink of yet another financial crisis,” he said in a report. “Economic fundamentals, including macro balance sheets, as well as the banking system as a whole, are all in good shape, so the repair is well within grasp. But it requires clear, forceful and urgent communication now by key policymakers.”

Nielsen, currently group chief economics adviser at UniCredit and formerly an economist at Goldman Sachs Group Inc. and the International Monetary Fund, attributed the seeds of recent turmoil to “excessive deregulation and insufficient supervision in the US.”

He also criticized Swiss authorities’ handling of Credit Suisse Group AG, observing that “we may have witnessed one of the financial world’s most devastating examples of destroying trust.”

The solution should be a common hiatus in monetary tightening until investors’ nerves have settled, Nielsen wrote.

“The major central banks, including the Fed and the ECB, should make a joint statement that any further rate hike is off the table at least until stability has returned to the financial markets,” he said. “Statements like these within the next few days would most likely be needed to take us away from the brink of a much deeper crisis.”

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.