In a blog posted Thursday, Mohamed El-Erian of Allianz SE said that the Federal Reserve would look at Friday’s jobs report before deciding whether it would raise interest rates in September. If it did so, that would mark the first interest rate increase in nine years.
In an interview today with Reuters, El-Erian said the Fed will now wait for the August jobs report — scheduled to be released on Sept. 4 — before deciding on a “September rate hike.” The reason isn’t jobs. “While job creation continues at a solid pace,” Reuters quoted El-Erian, “wage growth remains frustratingly tepid.”
But El-Erian’s former colleague at PIMCO, Bill Gross, said after the jobs report was released Friday that he saw the Fed raising interest rates in September by “probably 25 or 50 basis points — probably 25. I hope; 50 would scare the market.”
Why does he see such an increase then? “There have some pretty strong signals from Lockhart,” meaning Atlanta Fed president and FOMC member Dennis Lockhart, “and others that September is the number,” Gross told Bloomberg Radio’s Tom Keene in a telephone interview. “And I think it’s because of financial conditions,” Gross continued, “we know that inflation is close to zero. Yes, unemployment is steady, but low.”
Gross said the Fed is “almost mentally committed to moving before year end,” and said a rate increase in September is “not a unanimous opinion, but it’s a majority opinion at the moment.”
Why? “I think the Fed will move because of financial conditions … It’s a situation in which I think central banks are beginning to recognize that there are negatives to low interest rates, as opposed to positives.” Moreover, he said, “I think they would simply want to get off zero and show the world that a move toward normalization is possible.”