Ahead of the Federal Reserve’s upcoming rate decision, Mohamed El-Erian has highlighted concerns about the potential for disappointing interest rate cuts due to the Fed’s focus on employment.
What Happened: El-Erian, chief economic adviser at Allianz, highlighted concerns over the Federal Reserve’s focus on “maximum employment” potentially leading to underwhelming interest rate cuts.
El-Erian shared an article on X from The Economist titled “The Federal Reserve's interest rate cuts may disappoint investors,” emphasizing that markets might have overestimated the Fed’s commitment to its employment mandate.
El-Erian noted, “The concern for markets is that they have gone too far in pricing the Fed as a single mandate central bank.”
The article suggested that Fed Chair Jerome Powell could still surprise investors with a hawkish stance. The Fed’s rate-setting committee is expected to announce a rate cut on Wednesday, with market pricing indicating a 40% chance of a 0.25 percentage point cut and a 60% chance of a 0.5 percentage point cut.
Investors have been eagerly awaiting a reversal in the Fed’s interest rate policy after a series of rapid rate hikes over the past two and a half years.
See Also: Nasdaq, S&P 500 Futures Firm Up Ahead Of Retail Sales Data
Why It Matters: The context around the Federal Reserve's upcoming decision is crucial. Recent economic data has shown mixed signals, complicating the Fed’s decision-making process.
On Tuesday, U.S. retail sales for August rose by 0.1%, more than expected, suggesting resilient consumer spending.
Additionally, economist Quincy Krosby emphasized that the Fed must balance the impact of rate cuts on workers, noting that a smaller cut might offer more flexibility if inflation remains elevated.
Moreover, Nobel laureate Paul Krugman has argued that even a 50-basis-point cut would leave rates elevated. Meanwhile, economist Peter Schiff has warned that upcoming rate cuts might not lower borrowing costs, predicting rising mortgage rates and a potential dollar collapse.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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