Mohamed El-Erian Calls For July Rate Cut By But Says 'I Don't Think' Fed Will Take This Step: 'We Are Living In This Uncertain World'

In a recent interview, Mohamed El-Erian, the chief economic adviser at Allianz, suggested that the Federal Reserve should consider a rate cut in July. However, he expressed skepticism about the likelihood of this happening.

What Happened: El-Erian, in a conversation with CNBC, stated that the Fed should “absolutely consider” a rate cut if the PCE inflation data, due this Friday, is favorable. Despite this, he stated “I don’t think [The Fed] it will,’ cut interest rates.

“We are living in this uncertain world,” El-Erian said, pointing to disagreements regarding inflation dynamics. He noted that the economy is slowing down more rapidly than anticipated, suggesting that the central bank should consider earlier and faster rate cuts.

El-Erian warned against the Fed being too cautious, which could further slow down economic growth. He highlighted the potential risk of the Fed misjudging the labor market, which could further slow down the economy.

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This comes after Federal Reserve Governor Michelle Bowman stated on Tuesday that it is premature to lower the policy rate, and indicated her readiness to support further rate hikes if inflation worsens.

Why It Matters: El-Erian’s call for a rate cut aligns with his previous warnings about the potential economic risks of a delayed rate cut by the Fed. In a recent opinion piece, he emphasized the need for the Fed to act swiftly in reducing interest rates to prevent potential economic instability.

Meanwhile, U.S. Treasury Secretary Janet Yellen has expressed confidence in the American economy, dismissing the possibility of a recession and predicting that inflation will reach the Federal Reserve's 2% target by next year. This contrasts with El-Erian’s concerns about the pace of inflation and the potential impact on the economy.

El-Erian’s stance also echoes that of Federal Reserve Gov. Lisa Cook, who recently recommended the Fed lower its interest rate, though she did not specify when this should happen. However, former U.S. Treasury Secretary Larry Summers has criticized the Federal Reserve's optimistic stance on inflation, warning that the central bank is underestimating the long-term interest rates necessary to curb inflation.

Read Next: Fed’s Bowman Shocks Traders: ‘I Remain Willing To Raise’ Interest Rates If Progress On Inflation Stalls

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote