El-Erian Believes This One Powell Statement Changed Perception About Wednesday's Policy To Hawkish — It Got 'Most Raised Eyebrows'

Allianz chief economic adviser and noted economist Mohamed El-Erian has highlighted the one quote by Federal Reserve Chairman Jerome Powell which he thinks made many people perceive Wednesday's policy as hawkish despite the pause in rate hikes.

"…it will be appropriate to cut rates at such time as inflation is coming down really significantly and again we’re talking about a couple years out," Powell had said Wednesday.

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El-Erian said the statement is the reason why many have described Fed's pause in rate hikes as hawkish after ten successive increases. "It is also the one that has most raised eyebrows given that the [Fed] has insisted that it's data dependent and the Chair characterized forecasts as highly uncertain," he tweeted.

Powell asserted in his speech that not a single person on the committee wrote down a rate cut this year. "Nor do I think it is at all likely to be appropriate if you think about it. Inflation has not really moved down. It has not so far reacted much to our existing rate hikes. And so we’re going to have to keep at it," the Fed Chair said.

Yield Curve: Bond traders appeared to be increasing their bets on the probability the central bank will likely tip the U.S. economy into a recession as is apparent from the steepening of the yield curve inversion. The iShares 1-3 Year Treasury Bond ETF SHY shed 0.06% on Wednesday while the Vanguard Short-Term Treasury Index Fund ETF VGSH lost 0.05%, according to Benzinga Pro.

"Once again, the #Fed's press conference resulted in considerable market volatility. Also of note: The further considerable inversion in the 2s-10s yield curve (currently at minus 92 basis points)," El-Erian said in his tweet.

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