El-Erian Says Fed September Rate Hike Lower Than 90%

Economist Mohamed El-Erian told CNBC on Friday the probability of a September rate hike by the Federal Reserve is well below what traders believe.

Fed officials including Chairman Jerome Powell have raised interest rates twice this year and have indicated two more are coming before the end of 2018. The CME FedWatch tool, which is based on Fed fund futures trading, put the chances of a September rate increase at 91.4 percent on Friday.

“I think that’s way too high,” the chief economic advisor at Allianz said on “Squawk Box.” “If I looked only at the U.S., I would buy the 92 percent. But I think there are other things happening in the world.”

El-Erian’s probability of a rate hike was above 50 percent because of “headwinds from the rest of the world.”

“If it is 92 percent, then I think we’re going to see a lot more stress on various markets, including the global fixed income market, including the FX market. So that is a really important estimate,” he said.

However, the political stakes may be different for the Fed this time around. In an interview with CNBC earlier this month, President Donald Trump expressed frustration with the Fed’s recent move to raise interest rates and said the central bank could disrupt the U.S. economic recovery.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza