Tags: Financial Markets | El-Erian | September | Rate Hike | Federal Reserve

El-Erian: September Rate Hike Is Now a 'Really Tough Policy Call'

El-Erian: September Rate Hike Is Now a 'Really Tough Policy Call'
Mohamed El-Erian, chief economic adviser at Allianz SE (AP file photo)

Sunday, 23 August 2015 07:46 PM

Mohamed El-Erian, chief economic adviser at Allianz SE, warns that the global-market sell-off might not yet be over.

"We haven't seen one of two things that we need. Either we need better economic news to calm concerns about an accelerating global slowdown, or some policy intervention, not from the ECB or the Fed ... but that holds in the emerging world," El-Erian told CNBC on Sunday.

"The emerging world is being hit in two ways: one is a demand shock and two is in terms of trade shock. They are commodity exporters and commodities have come down," El-Erian said.

Meanwhile, he said that the U.S. Federal Reserve might not raise interest rates in September against a backdrop of slowing global economic growth.

"It's a really tough policy call," El-Erian said in an interview with Reuters. "Not only do domestic indicators conflict with external ones, but the Fed itself has only a partial handle on the economy — and inevitably so. This is a time of significant policy uncertainty, particularly given that what's on the table is a policy regime change — namely the first interest rate hike in over nine years."

China, the world's second-biggest economy, showed unexpectedly weaker growth in factory output, investment and retail sales in July. Its central bank also surprised markets by pushing the yuan lower on Aug. 11 in the nation's biggest devaluation in two decades. China's yuan dropped by a cumulative 4.4 percent against the U.S. dollar last week, causing waves around global markets.

In addition, economic growth in the euro zone slowed in the second quarter as France stagnated and Italy lost momentum, data released on Aug. 14 showed.

El-Erian said the U.S. central bank is operating without the support of other policymakers. "And its models haven't done a great job of predicting economic developments, and understandably so given all the structural changes here and abroad," he said.

El-Erian added that he doesn't believe a global crisis is brewing.

"The classic combination of contagion and market overshoots is brewing. Started with emerging market currencies and has been spreading through corporate and equity markets."

© 2020 Thomson/Reuters. All rights reserved.


   
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Mohamed El-Erian, chief economic adviser at Allianz SE, said that the U.S. Federal Reserve might not raise interest rates in September against a backdrop of slowing global economic growth.
El-Erian, September, Rate Hike, Federal Reserve
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2015-46-23
Sunday, 23 August 2015 07:46 PM
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