The market sees the government's move to backstop depositors at Silicon Valley Bank as a sign the Federal Reserve will back away from its efforts to tame inflation, according to Mohamed El-Erian, Allianz chief economic advisor.
"With the US #SVB-related bailout going beyond what many expected, markets see it as more than protecting deposits and small #tech," he tweeted early Monday, reiterating comments from the weekend.
"The immediate move in 2-year bonds points to the view that, by treating this as a systemic threat, the #Fed will also retreat from its #inflation battle," he added.
On Sunday, the U.S. Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. issued a joint statement saying they were "taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system" and fully protecting all SVB customers.
"Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer," Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell and FDIC Chairman Martin Gruenberg said.
"We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority," they added. "All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer."
El-Erian, appearing Monday on CNBC's "Squawk Box," said that "we are now in a different world," and suggested the banks got to this point because of Fed policies.
"Did we need to do all this? I think given the urgency over the weekend and the fact that there was no perfect policy response, we had to make some compromises," El-Erian said.
