Fed should stick to interest rate hikes despite SVB chaos: El-Erian

Mohamed El-Erian, Chief Economic Advisor at Allianz SE

Mohamed El-Erian, Chief Economic Advisor at Allianz SE, said the US is facing the risk of stagflation in the aftermath of the Silicon Valley Bank (SVB) collapse, which has rocked financial markets over the past few days. 

In an interview with CNBC on March 13, El-Erian stressed that the Federal Reserve should continue the path of raising interest rates, lifting them at a rate of 0.25%.

El-Erian's remarks came despite analysts expecting the Fed to halt its interest-rate increases, at least during the rate-setting meeting on March 21-22. Forecasts for a forthcoming interest rate hike have diminished.

On March 12, Goldman Sachs analysts said the Fed is unlikely to raise interest rates at next week's meeting, due to pressures on the banking system amid the SVB meltdown.

Elsewhere, El-Erian underlined that the Fed needs to clarify the tools in store for combating inflation and achieving financial stability, with the need not to confuse the two terms.

He added that high inflation has been weighing on the economy and allowing this problem to persist would translate into increased costs to the public. This will, in turn, push the economy into a state of stagflation.