2023-06-14 07:37:00
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Investing.com – Allianz Chief Economic Adviser (TADAWUL:8040) said a major error might be made at the close of its meeting on Wednesday, warning investors to prepare for it.
Mohamed El-Erian warned that “skipping” a hike “may be the least desirable” of three options available to the central bank, in an opinion piece published by the Financial Times on Monday.
Most traders expect the Fed to hold rates at their current level before raising them once more by 25 basis points at the July meeting, according to Investing Saudi Arabia’s Fed Interest Tracker.
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The approach — backed by senior policymakers including board member Christopher Waller — would allow the central bank to watch another six weeks of economic data before deciding whether to press ahead or pause its war on inflation.
El-Erian, however, criticized the idea of fixing rates, as it is likely to teach the Fed less regarding how its efforts to tame price hikes between now and its next meeting scheduled to start on July 25 will affect it.
El-Erian added: It is unlikely that another month’s data will enhance the central bank’s understanding of the effects of its policy tools.
El-Erian said, “The latest data supports a new increase in interest rates by the central bank, which has repeatedly insisted that it is ‘data-dependent,’” referring to the labor market data, which remains strong despite the tightening efforts.
El-Erian added that instead of skipping a rate hike, the Fed should either raise borrowing costs once more or signal that it pauses its tightening campaign while adopting a new inflation target of 3% to 4%.
Constant criticism
El-Erian had earlier criticized the US Federal Reserve for being late in fighting inflation.
The chief economic adviser to the company, “Allianz”, pointed to the risks related to the failure of the Federal Reserve to take the best measure in dealing with the US economy.
Inflation in the United States began to pick up during 2021, while the Federal Reserve launched a series of sharp interest rate increases in 2022.
El-Erian also noted that the divergence between the Fed’s signals and investors’ expectations regarding the rate might cause market turmoil.
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