They warn that another FED rate increase could break the US economy

Isabelle Lee and Jonathan Ferro

10-20-2023 18:36

The US economy is going through a period of “increased uncertainty” due to the lack of vision of Federal Reserve officials, who remain determined to return inflation to the target of the 2%said Mohamed El-Erian.

“You can’t drive a car without some knowledge of what the road ahead is like. “You can’t just look in the rearview mirror and try to adapt to every curve you just passed,” El-Erian, chief economic adviser at Allianz SE and Bloomberg Opinion columnist, said Friday on Bloomberg Television.

“This is not how politics is run.” and that is certainly not how policy is run when the impact of policy comes with a delay,” he said. “This is the first Fed that I know of that has not achieved it.”

His comment comes after Fed Chairman Jerome Powell gave a speech Thursday at the Economic Club of New York, followed by a fireside chat with Bloomberg’s David Westin. Powerl suggested the Federal Reserve is leaning toward holding interest rates once again at its meeting on October 31 and November 1, while leaving open the possibility of another hike should there be more signs of resilient economic growth.

The Federal Reserve could opt for a new increase in interest rates after the employment rates

El-Erian also said the risks of tightening monetary policy too much are real and he hopes the Federal Reserve Keep your current benchmark interest rate unchanged this year for the sake of economic stability.

“There is a risk that if we try to get to 2% too quickly, we will break something in the economy”said El-Erian. “They have to move from an over-reliance on data to a data dependence that has a greater forward-looking component. That was what he hoped would happen this week and it hasn’t happened.”

How did the market react to the statements?

10-year Treasury yields neared 5% on Thursday, while two-year rates — more sensitive to the Fed’s imminent moves — fell after Powell said the central bank will proceed cautiously with rate hikes and cited evidence that the policy is not “too much.” strict.”

“This simply shows that at this moment It is very difficult to achieve the right balance when talking about monetary policy. So it’s good that they are quiet because that is a source of instability,” El-Erian said, referring to the Fed’s period of silence — where officials cannot make public comments about the economy or policy prospects — before its release. Next meeting.

Aside from Powell, several other Fed officials also made remarks at various events on Thursday.

“But fundamentally, we need them to stabilize the bond market. The bond market is fundamental for other markets, for the real estate market, for the economy,” El-Erian said. “We are not going to get stabilizers from the technical side or from the economic side, so we desperately need stabilizers from the policy side.”

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