Concerns are mounting over Credit Suisse’s financial health — but that doesn’t mean markets are headed for a “Lehman moment,” said the president of Sri-Kumar Global Strategies.
“I think the Federal Reserve has to face 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,”[ads1]; he said, referring to the collapse of Lehman Brothers in 2008, which triggered a series of large Wall Street bailouts and a subsequent financial crisis.
Over the weekend, several media outlets reported that Credit Suisse was trying to allay investor concerns over its financial health – the Swiss bank reportedly contacted its biggest clients after credit default swaps soared.
CDS are essentially insurance bets against default, and a credit event refers to a negative and sudden change in the borrower’s ability to repay the debt.
A longtime critic of the Fed’s approach to rate hikes, Sri-Kumar said the latest events surrounding 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 promises to keep raising interest rates to curb inflation.
In the Fed’s last monetary policy meeting in September, the central bank raised its benchmark interest rate by three-quarters of a percentage point and indicated that it will continue to raise interest rates well above the current level.
Sri-Kumar said such attempts to control inflation are dangerous for markets worldwide.
“It poses a huge risk to the global system in terms of what the various central banks are doing,” he said.
The latest reports about Credit Suisse’s actions to calm worried investors could point to an eventual shift in the Fed’s direction, said John Vail, global chief strategist at Nikko Asset Management.
“The silver lining at the end of this period is the fact that central banks are likely to start easing for a while as both inflation is down and financial conditions deteriorate dramatically,” 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 in the next quarter,” he said.