Mohamed El-Erian Cautions Inter-Meeting Rate Cut Has High Risk Of Being 'Counterproductive,' Says Jerome Powell Has Opportunity At Jackson Hole To 'Regain Control Of The Narrative'

Mohamed El-Erian, the chief economic adviser at Allianz, has advised the Federal Reserve to postpone a rate cut until September. He also emphasized the significance of the upcoming Jackson Hole symposium for Fed Chair Jerome Powell to regain control of the narrative.

What Happened: El-Erian, in a post on X, highlighted the ongoing debate over the Fed’s policy and suggested that the focus should shift to the opportunity Powell has at the Jackson Hole symposium to steer the narrative and provide forward policy guidance.

“It needs to go beyond this and also focus on the opportunity Chair Powell has at Jackson Hall to regain control of the narrative and anchor forward policy guidance,” El-Erian wrote.

El-Erian recommended “As to the next rate cut, the Fed definitely should wait for September IMO. An inter-meetings cut would carry a very high risk of being counterproductive.”

The ongoing debate on Fed policy is focused on whether the Fed should cut inter-meetings or in September, and by how much.
It needs to go beyond this and also focus on the opportunity Chair Powell has at Jackson Hall to regain control of the narrative and anchor forward policy…

— Mohamed A. El-Erian (@elerianm) August 6, 2024

El-Erian attached his Financial Times opinion piece, where he outlined the key issues that the Fed should address during the summer to ensure the economic well-being of the U.S. and global financial stability.

These issues include the Fed’s recent forecasting inaccuracies, the need for a more forward-looking policy, the urgency of a review of the 2020 revisions to the Fed’s monetary policy framework, and the appropriate inflation target and neutral interest rates, according to El-Erian.

He also suggested that the Fed should consider appointing outside experts to its top policymaking committee, put more emphasis on the risk of damaging the real economy, and be more open about the risks of the current U.S. fiscal outlook.

Why It Matters: On Sunday, El-Erian noted that the probability of a 50-basis-point cut by the Federal Reserve in September had surged to 80%, reflecting traders’ expectations of a more aggressive rate cut cycle. This was driven by a global market meltdown, with Asian markets falling into correction territory.

On Tuesday, speculation about an emergency rate cut before the September meeting was fueled by comments from Chicago Fed President Austan Goolsbee. However, the probability of such a cut dropped sharply from 58% to 14% within a day.

Additionally, the recent market turmoil has been partly attributed to the Bank of Japan’s actions. The unwinding of the Japanese Yen carry trade led to significant losses in global markets, including the largest drop in Japan’s Nikkei 225 index in decades.

Read Next:

• Fed May Be ‘Bullied’ Into 50 BPS Cut In September, Says Mohamed El-Erian, As Global Markets Melt Down

Image Via Shutterstock

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