- Economist says it would be a major policy mistake for the Fed to make ‘stop-and-go’ moves to raise interest rates Mohamed El-Erian told Bloomberg.
- The concept of a “Fed pause” has gained ground among stock investors in recent weeks.
- He said it was a “soft” landing for the US economy that top investors could hope for.
The US stock market halted its longest weekly drop in two decades, in part as investors cling to hopes for a US decline.
The Federal Open Market Committee will begin its meeting later this month with indications that US inflation is starting to cool. Among them, Core Personal Consumption Expenditures Index – Fed’s preferred indicator of inflation – rose to 4.9% in April, easing from the 5.2% pressure in March. Stocks rose on Friday after the report, highlighting investors’ hopes that the Fed might not be so hawkish in raising interest rates.
Policymakers are tightening rates in a slowing economy when they should have started the march nine months ago to put the economy in a position beyond a so-called soft landing or slowdown in activity.
El-Erian told Bloomberg in an interview Friday.
“So the best you can hope for right now is a soft landing. What are the odds of that happening? It’s not as high as I’d like,” the Allianz consultant said. “I think the Fed will have to decide between two policy mistakes: hitting the brakes too hard and risking a recession, or hitting the brakes in a stop-and-go pattern… and risking having inflation by 2023.”
The latest consumer prices inflation report for April, 8.3% headline reading, It fell from 8.5% in March, but inflation was still at 40-year highs. Gross domestic product It shrank 1.5% in the first quarter.Worse than originally anticipated by the Commerce Department.
this S&P 500 ended an eight-week streak this week, making it the longest streak since 2001. March meeting of the Federal Open Market Committee.
Moving quickly in interest rates will leave the FOMC “in a good position to assess the effects of policy tightening later this year and the extent to which economic developments require policy adjustments,” they said.
El-Erian said that the Fed’s halting the rate hike cycle in September would be an example of the central bank moving in a stop-start model. Goldman Sachs said He said this week that stock sales could bottom out if the Fed says it’s ready to stop tightening monetary policy. The idea of a “Fed pause” Stopped by other voices on Wall Street.
This week, global equity funds saw their biggest inflows in 10 weeks, with a “summer rally majority” [is] Bond tracker EPFR has seen its biggest inflows from U.S. equity funds since the second week of March, Bank of America said on Friday. get used to the drop in the stock market Despite the 32% drop in the value of their portfolios, Vanda Research said this week.
“There are people who clearly find bargains and there are single name bargains,” El-Erian said. He said an adverse technical reaction to weekly losses is understandable.
“What I don’t understand is the idea that the Fed can suddenly raise twice and then calm down and pause. The only reason that happens is because, as I said before, demand collapses. And if demand collapses, stocks are not going to be good.”
It marked the decline in equities last week after retail-heavy Target missed quarterly earnings expectations as inflationary pressures contributed to its profits slashing 52%.
“[Target] “And the last thing this stock market needs right now is more concern about earnings.”