News
The economy is slowing much faster than the Fed expected: Mohamed El-Erian
Former Pimco CEO Mohamed El-Erian discusses why the Federal Reserve should cut rates in July on ‘The Claman Countdown.’
Disappointing economic indicators are taking hold as markets prepare for an expected rate cut in July, and a prominent economist and educator has warned of a bigger slowdown than previously anticipated.
“So far, we’ve had disappointing retail sales. We’ve had disappointing manufacturing numbers from the PMI. The ISM numbers have been disappointing. [Tuesday’s] job vacancies were considerably below expectations,” said Mohamed El-Erian, president of Queens’ College at the University of Cambridge, in “Claman’s countdown.” “Citi has this ‘surprise index’ and we’ve had nothing but negative surprises.”
“And all that tells us is that the economy is slowing much faster than most people expected, including the Fed,” he continued.
According to ADP National Employment Report Released on Wednesday morning, hiring by North American companies slowed more than expected in May, pointing to a job market that continues to cool in the face of higher interest rates.
AMERICANS WITH ADJUSTABLE MORTGAGES COULD SOON SEE THEIR PAYMENTS SOAR
Businesses added 152,000 jobs last month, below the 175,000 increase predicted by LSEG economists and April’s downwardly revised gain of 188,000. It was the worst month for job creation since January.
Economist Mohamed El-Erian predicts that the Federal Reserve, led by Chairman Jerome Powell, above, will cut rates in July and that there is still a 35% probability of recession. (Getty Images)
Data released on Tuesday showed Job vacancies in the US plummet in April to its lowest level in more than three years, marking another sign that the labor market is starting to weaken in the face of higher interest rates and persistent inflation.
The Federal Reserve raised interest rates 11 times starting in March 2022 in an effort to contain inflation and cool the job market. Policymakers have suggested that rapid wage growth — a product of a strong labor market — was a contributing factor to the inflation crisis that has devastated the pocketbooks of millions of Americans in recent years.
Tressis Chief Economist Daniel Lacalle says Treasury Secretary Janet Yellen cannot expect a strong economy with more spending and higher taxes on “Making Money.”
“That’s where the political error comes in. Monetary policy acts late,” said El-Erian. “So you’re really targeting the economy of tomorrow. But if you do that based on yesterday’s data, you’re likely to get it wrong.”
“When they decided that inflation was transitory, when people, including us, told them: ‘It’s not transitory, pay attention’, they were afraid to make an important strategic decision,” added the economist. “And I think that’s where we’re at risk right now.”
GET THE FOX DEAL ON THE GO BY CLICKING HERE
Federated Hermes CIO Stephen Auth reveals when the Fed might cut interest rates and discusses whether a Republican president is better for the stock market in ‘Making Money.’
El-Erian said he believes there is still a 35% chance that the U.S. economy will go into recession.
“We enter 2023 with people saying there is a 100% probability of recession, and the US economy is surprisingly positive,” he highlighted. “Unfortunately, we entered this year a little too optimistic and now the economy is slowing down.”
FOX Business’ Megan Henney contributed to this report.