Mohamed El-Erian, Chief Economic Advisor at Allianz, has outlined key expectations and market pricing ahead of next week’s Federal Reserve policy meeting, according to a post on X on Wednesday.
What Happened: El-Erian highlighted officials’ interest rate expectations and how they compare to market forecasts. He also provided additional details on market pricing and the Fed’s latest macroeconomic projections.
El-Erian shared a screenshot of charts indicating implied overnight rates and the anticipated number of rate hikes and cuts. These charts suggest that the Fed rates could decrease to nearly 4% by the end of this year and bottom out at 3% by July 2026.
El-Erian also highlighted the FOMC’s 2024 projections, which include real GDP growth of 2.10%, core PCE inflation at 2.80%, and an unemployment rate of 4%.
The Federal Reserve rate has remained in the 5.25%–5.50% range since July 2023. However, policymakers have signaled potential rate cuts as inflation nears the Fed’s 2% target and signs of an economic slowdown emerge.
Why It Matters: The context surrounding the Federal Reserve’s potential rate cuts is crucial. The August Consumer Price Index report, which showed a 2.5% annual increase, has dampened hopes for aggressive monetary easing. While headline CPI slowed, core inflation rose 0.3% month-over-month, indicating persistent inflation in service-related sectors.
Despite the mixed inflation data, some economists believe the Federal Reserve has the “all clear” to begin cutting rates. Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, stated that the Fed has the green light to cut 25 basis points at the upcoming meeting.
Additionally, market sentiment does not indicate a looming recession. According to Nick Colas, co-founder of Datatrek, U.S. corporate bond spreads are not widening significantly, suggesting that the market is not overly concerned about an impending recession.
Read Next:
Federal Reserve illustration created using artificial intelligence via MidJourney.
This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
