The Fed will be making a big mistake if it skips a rate hike this week, top economist Mohamed El-Erian warns
Mohamed El-Erian has suggested that the Federal Reserve could be making a error in policy. Choosing not to increase rates may not be the best option for the central bank, he had warned. Current predictions show that the Fed will not raise rates this week, but will instead do so in July.
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According to Mohamed El-Erian, investors need to prepare themselves for the possibility that the Federal Reserve might make an error during their meeting on Wednesday.
The renowned financial expert cautioned that choosing to not increase the interest rate might not be the best decision among the three choices the central bank has. This was stated in an article that was published on Monday by Financial Times.
The majority of traders anticipate that the Federal Reserve will maintain their current borrowing costs on Wednesday and will subsequently increase them by 25 basis points in July, according to the Fedwatch tool provided by CME Group.
This strategy, which has the support of influential decision makers such as board member Christopher Waller, will give the central bank an additional six weeks to analyze economic information and decide whether to continue or temporarily stop their efforts to combat inflation.
However, El-Erian, who used to be a co-CIO at PIMCO, criticized the suggestion of skipping a meeting. He cautioned that it's improbable for the Fed to gain sufficient knowledge regarding the effectiveness of their actions in controlling increasing prices before their upcoming meeting on July 25.
He stated that having an extra month of data is not likely to improve the Federal Reserve's comprehension of a policy tool that acts with varying delays.
El-Erian stated that the most current information supports an increase in interest rates for the central bank, which has consistently claimed that it makes decisions based on data. This is probably related to recent economic reports, like the one in May about employment, which indicated that the job market in the US is still very strong, despite the bank's previous efforts to tighten regulations.
El-Erian suggested that the Federal Reserve shouldn't avoid raising interest rates and should instead consider increasing them once more or indicating that they plan to temporarily stop raising rates. Additionally, he proposed that they should adopt a new inflation goal of between 3% and 4%.
Additional information can be found on the subject at hand: Esteemed economist David Rosenberg has ridiculed the notion that the Federal Reserve should raise interest rates once more following a sharp increase in job opportunities.
