El-Erian: Fed May Consider Rate Hike Sooner if Wages Grow Faster

Friday, 22 Aug 2014 08:29 AM

By Dan Weil

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Stagnant wages represent a major factor in holding back the Federal Reserve from interest-rate increases, says former Pimco CEO Mohamed El-Erian.

Wages gained just 2 percent in the 12 months through July. But if that pace picks up, the Fed could push forward its timetable for rate hikes, he told CNBC.

"With the exception of labor compensation, every indicator they look at has improved faster than they expected, and . . . the labor market has moved noticeably closer to what's viewed as normal," El-Erian said.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

Non-farm payrolls have risen more than 200,000 for the past six months, the longest such streak since 1997.

"If labor compensation moves in the next few employment reports, then there will be a change in the view of the interest rate paradigm," El-Erian said.

Many economists now forecast the Fed will raise rates in the second or third quarter of 2015. The central bank has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.

El-Erian criticized the Fed easing program for going overboard. "What it is sacrificing is financial stability" for "immediate economic gains," he said.

El-Erian isn't the only one with qualms about the Fed. Financial industry professionals give the Federal Reserve an approval rating of just 49 percent in a survey by ConvergEx Group brokerage.

A total of 32 percent of the 219 people polled by ConvergEx Aug. 12-14 disapprove of the Fed's performance.

A total of 59 percent of respondents say the Fed is behind the curve in raising interest rates, while 32 percent say the Fed is getting it right and 9 percent say rates should be lower.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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