The Federal Reserve is set to refrain from cutting interest rates for “quite a while,” following a hotter-than-expected inflation report, according to Mohamed El-Erian.
The Fed, in theory, should be raising rates now, if it’s truly committed to the 2% inflation target, El-Erian, president of Queens’ College, Cambridge and a Bloomberg Opinion columnist, said in an interview on Bloomberg Television Wednesday.
But it’s more likely that the central bank will hold rates, tolerating higher inflation to protect economic growth and U.S. exceptionalism, he added.
“At face value, it’s not good news for the Fed,” El-Erian, said, referring to January’s consumer price report.
“They will tolerate high inflation and they will just keep promising us that everything will be fine, and I think that we are going to be pausing, the pause button will be on a lot longer than the markets has been expecting,” he added.
Treasurys slumped, sending yields higher across all maturities by at least eight basis points after the data release.
El-Erian, former chief executive of Pimco, also criticized Fed Chair Jerome Powell and his colleagues for overreacting to economic data and providing confusing forward guidance to investors, which amplifies market volatility.
“This Fed has no strategic anchoring,” he said. “There was no meaningful forward policy guidance coming from this Fed and that is the big mistake.”
El-Erian added that the hot inflation data was not an “outlier” because it’s consistent with other economic data. In addition, the report shows that companies and consumers are much more sensitive now to actual and expected cost increases.
“This is a different economy,” he said.
(Credit: Bloomberg)
Copyright 2025 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.