El-Erian: The Fed will make a big mistake if it stops rate hikes

According to Mohamed El-Erian, investors should be prepared that the Fed could make a mistake once its June meeting ends.

The chief economist, writing in the Financial Times on Monday, said “jumping” the rate hike may be “potentially the least desirable option” of the three options before the Fed.

El-Erian, former co-chief executive of investment firm PIMCO, said he would learn little in July about how the Fed’s efforts to rein in price increases are working and criticized the idea of ​​skipping a rate hike.

‘FED ​​SHOULD RAISE’

“An additional month of data does not change the Fed’s understanding of the effects of the policy instrument. “The latest data supports a rise from the central bank which has consistently insisted it is ‘data bound’,” he said.

Referring to data indicating the US labor market remains warm despite rate hikes, El-Erian said the Fed should raise interest rates again or adopt a new 3-4 inflation target. percent, indicating that it is halting the tightening campaign rather than skipping the rate hike, he added.

INTEREST IS EXPECTED TO REMAIN FIXED

Investors expect the Fed to keep rates at their current level at its June meeting before raising rates by 25 basis points in July.

This approach, backed by major policymakers, will allow the Fed to look at six weeks of economic data before deciding to stop its war on inflation.