Tags: El-Erian | Fed | rate | September

El-Erian: 'We Will Get a Rate Hike This Summer'

By    |   Monday, 02 March 2015 01:30 PM

You can add Mohamed El-Erian, chief economic adviser at Allianz, to the list of those anticipating a Federal Reserve interest-rate increase around mid-year.

"My own impression is that we will get a rate hike this summer, by September, not in September," he tells CNBC. This summer the Fed meets in June and July. The central bank has kept its federal funds target rate at a record low of zero to 0.25 percent since December 2008.

Like others, El-Erian doesn't expect the rate-hike process to be a quick one, given the economy's fragility.

Along with its first rate hike, the Fed will offer "very aggressive forward policy guidance, which tells us it's a long journey, so markets don't go to the terminal late," El-Erian predicts. "We want to focus on a very gradual journey."

He thinks the process will finish with the fed funds rate "well below" its historical average of 4 percent.

When it comes to currencies, "the dollar has further to go [upward], but it won't be linear," El-Erian notes. "The thing that investors should value most is liquidity, the ability to reposition…. don't give up liquidity. These markets are structurally no longer constructed to provide liquidity." The greenback has hit multi-year highs against a range of currencies in recent weeks.

In addition, he suggests short-term investors move out of the U.S. and into Europe.

As for the Fed, Tom Hutchinson, senior editor of the Newsmax newsletter "The High Income Factor" and member of the Newsmax Financial Braintrust, tells Newsmax TV he's skeptical it will be strong enough to raise rates as much as necessary.

"It's a huge problem," Hutchinson tells Newsmax TV's "America's Forum." "The Fed has injected itself in the economy like never before in history. Since the recession, they've pumped more than $4 trillion into the banking system" in addition to the low rates.

"What's being debated now is raising the rate from near-zero, priced for a depression scenario, and they're having trouble doing even that," Hutchinson argues. The Fed has pledged a "patient" path to raising rates.

"The thing to realize is it's much easier [for the Fed] to get involved in the economy than it is to pull out," he explains. "At some point, to protect from inflation they'll need to reverse policies and move interest rates higher. I don't think they'll have the will to do it to the extent it needs to be done."

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You can add Mohamed El-Erian, chief economic adviser at Allianz, to the list of those anticipating a Federal Reserve interest-rate increase around mid-year.
El-Erian, Fed, rate, September
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2015-30-02
Monday, 02 March 2015 01:30 PM
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