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00:00Now, when you look at what's going on in the U.S., do you. Do you really worry about shadow banking? And again, when you talk about shadow banking, do we have any idea of how big this is? So we don't. And that's one of the problems, is that the supervisory process and the regulatory process has lagged developments. So what happened, as you know, is that lots of the risks that were in the major banks migrated to the non banks. And non banks now operate like some of the major banks. We don't have a good understanding of that. But what we do know is that sudden moves tend to catch people offside. You and I lived through the October November drama in the United Kingdom. Who would have thought that the pension system could be cooked to quote Andrew Bailey near meltdown? But it happened because interest rates moved so quickly. So there are significant fragilities in the non banking sector. And we've got to figure that out. But in the US, is it the Fed's fault because they were behind the curve in dealing with inflation and then when all guns blazing, you know, the example I use is how would you feel if you call when there's fog and the driver continues to drive it at maximum speed and then the fog, because they see the foggiest transitory, it will lift. Then the fog thickens. They say, well, maybe it's not transitory, but they continue to drive quickly and then suddenly they panic and hit the brakes. Do we expect accidents when someone drives like that? Yes. And we've we've gotten financial accidents. For me, it doesn't come as a surprise at all that the mistake of transitory inflation and the mistake of not moving fast enough to begin with, which then resulted in the massive increase resulted in accidents. The hope is you don't get a big economic accident. Right. So how can they readjust to that? Right. So they've made the mistake. What do they do now? So the worst thing that we could do right now is to say we have a credit issue coming up. Let's cut interest rates. If they do that, we will end up with stagflation and financial instability. I think President Legarde was absolutely right when says interest monetary policy interest rates is targeted at price stability and all the other tools we have. We target financial stability. Do not commingled to I think the ECB understand that that but the Fed is at the risk of commingling. This is different. This is actually also the argument that Ellen Zentner of Morgan sounding saying sayings that they have to keep these two separate. It's very easy to to conflate them if it infects the economy. Correct. And the market is already conflicted. The reason why the market thinks that we're going to get a cut as early as June is they believe that the Fed is going to be reacting not to a significant decline in core inflation. That's going to remain a problem. That's going to be the play reacting to something else. And I think that would be a mistake.

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El-Erian Says Fed Can't React to Every Piece of Data

Mohamed El-Erian, chief economic adviser at Allianz and Bloomberg Opinion columnist, says that the Federal Reserve should stay focused on price stability and not overreact to the recent turmoil in banking. "The worst thing that we could do right now is to say 'we have a credit issue coming up -- let's cut interest rates,'" El-Erian said in an interview with Bloomberg in Cernobbio, Italy. "If they do that we will end up with stagflation and financial instability." El-Erian's opinions are his own. (Source: Bloomberg)

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