Mohamed El-Erian Warns Fed's Path Forward Is Clouded By Trump Tariffs And Israel-Iran Conflict

Senior economist Mohamed El-Erian anticipated a rocky road ahead for the Federal Reserve to formulate the monetary policy, as the “uncertainties” surrounding the federal policies and geopolitical scenario “cloud” the Fed’s policy radar.

What Happened: Despite the consensus on the Fed to hold the interest rates steady at 4.25%-4.5% after Wednesday’s meeting, El-Erian highlighted certain “considerable interest” that will help in determining the monetary policy’s future path in an X post.

The extent to which it will lower its growth projection.
What it does with its inflation forecast.
Whether the dot plot will leave two rate cuts for this year.
How Chair Jerome Powell characterizes the trifecta of data, policy, and geopolitical uncertainties.

“One thing is for sure: All this will translate into a continuation of the Fed’s wait-and-see policy approach,” he added.

In a following post, he pointed toward the growing tensions between Iran and Israel, along with Donald Trump’s policies around tariffs and the tax bill.

“Uncertainties on policy and geopolitics cloud the Fed's policy radar.”

Meanwhile, Ed Yardeni also highlighted that he would be watching out for the median economic forecasts in the Fed’s ‘Summary of Economic Projections.’

“The SEP is likely to signal a couple of small cuts in the federal funds rate in the coming months. But Powell will certainly reiterate that the FOMC is in no hurry to do so,” he added.

Why It Matters: Macro strategist at the Bear Traps Report, Craig Shapiro, said in an X post that he thinks the Federal Reserve wasn’t going to bring inflation back down to target in “any reasonable period of time and they really don’t care to.”

According to him, the Fed needs to change the “composition of their UST (United States Treasuries) holdings on their balance sheet” because buying T-bills or short-term government securities instead of long-duration securities will alleviate liquidity from the market in the short term and aid in containing inflation.

Meanwhile, citing the cooldown in May CPI print, Louis Navellier of Navellier & Associates said that “I hope the FOMC statement will refer to better-than-expected inflation news rather than anticipating an inflation ‘bogeyman’ that has not materialized.”

The CME Group's FedWatch tool‘s projections show markets pricing a 99.9% likelihood of the Federal Reserve keeping the current interest rates unchanged in its June meeting.

But it projects a 64.9%, 81.4%, and 93.0% chance of a rate cut after September, October, and December meetings.

Price Action: The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose in premarket on Wednesday. The SPY was up 0.31% at $599.39, while the QQQ advanced 0.38% to $531.07, according to Benzinga Pro data.