Chief Economic Advisor at Allianz SE Mohamed El-Erian
Growing consensus that the economy will slow down enough to allow interest cuts next year has led to a substantial market turnabout, Chief Economic Advisor at Allianz SE Mohamed El-Erian told CNBC.
El-Erian expects the Federal Reserve to maintain a cautious approach.
"I wouldn't go as far as the market to price in a 50% probability of a March cut and five cuts next year, unless you believe we're going into recession," he said. "If you believe we're going into recession, then equities shouldn't be where they are."
"There is a market romance right now with the softish of soft landings," he said. "I think that's probably too much of a romance, but it is one that led to the biggest monthly loosening of financial conditions on record."
While the Fed has not lowered benchmark rates yet, other indicators of borrowing costs have plunged recently on hopes that monetary policy easing is coming next year.
The 10-year Treasury yield hit 5% in late October but plummeted below 4.3% a month later.
The Fed is still warning investors that a pivot to rate cuts would be premature. However, El-Erian stressed that the forthcoming inflation data may not be as encouraging as it recently has been.
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