Worries are piling up The financial health of Credit Suisse – but that doesn’t mean markets are headed for a “Lehman moment,” said the chairman of Sri-Kumar Global Strategies.
“I think the Fed will have to deal with the consequences of a credit event” if it were to occur, Komal Sri-Kumar told CNBC’s “Squawk Box Asia” on Monday. “Something is going to break.”
“This may or may not be a Lehman moment,” he said, referring to the collapse of Lehman Brothers in 2008, which triggered a series of big Wall Street bailouts and a subsequent financial crisis.
Over the weekend, several media outlets reported that swiss credit tried to calm investors’ concerns about its financial health: the Swiss bank reportedly contacted its major clients after its credit default swaps rose sharply.
CDS are essentially insurance bets against defaults, and a credit event refers to a sudden negative change in a borrower’s ability to repay its debt.
Sri-Kumar, a longtime critic of the Fed’s approach to rising prices, said the latest developments around Credit Suisse show the “real danger of having miscalculated inflation for so long.”
“They’re trying to make up for it by doing everything in a hurry,” he said, referring to the Fed’s continued hawkish policy and its promise to keep raising interest rates to control inflation.
In the Last Fed monetary policy meeting in SeptemberThe central bank raised its benchmark rate by three-quarters of a percentage point and indicated that it will continue to raise rates well above the current level.
Sri-Kumar said such attempts to control inflation are dangerous for markets around the world.
“It carries an enormous amount of risk to the global system in terms of what the various central banks are doing,” he said.
The latest reports of Credit Suisse actions to calm worried investors could point to an eventual change in direction from the Fed, said John Vail, chief global strategist at Nikko Asset Management.
“The silver lining at the end of this period is the fact that central banks will probably start to pull back at some point as inflation comes down and financial conditions drastically worsen,” he said on CNBC’s “Squawk Box Asia” on Monday.
“I don’t think it’s the end of the world, but it could be scary for the next quarter or so,” he said.
