Tags: el erian | fed | rate | cut | hike

El-Erian: Next Fed Rate Move More Likely Cut Than Hike

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By    |   Tuesday, 05 February 2019 11:24 AM

Economist Mohamed El-Erian predicts that for its next trick, the Federal Reserve is more likely to cut rates instead of hiking them even higher once again.

The Allianz chief economic adviser told CNBC that he sees a 50 percent to 55 percent chance of the next Fed move being a cut that would happen sometime in 2020. The Fed is likely to hold interest rates steady for the entire year after hiking four times in 2018.

The unwinding of the Fed’s balance sheet, or portfolio of assets, “certainly will go off autopilot” in 2019, the Bloomberg Opinion columnist and Newsmax Finance Insider said.

The central bank is aiming to reduce its more than $4 trillion worth of bond holdings by up to $600 billion this year by not replacing maturing assets, CNBC explained.

El-Erian thinks that balance sheet plan will be altered. “It will alter it both the notion of the destination and the pace.” He refused to the put numbers on the destination, saying its data dependent.

However, there are different interpretations when one reads the central bank's tea leaves.

For example, BlackRock Inc's Rick Rieder told Reuters this week that the Fed wants to raise interest rates one to two more times this year and will do so if inflation gathers steam.

Rieder, who is chief investment officer of global fixed income for the world's largest fund manager, said markets expect the Fed's next move on rates will be to cut them. Many investors are predicting a recession by 2020 with limited basis for such a claim, he told Reuters in a phone interview on Monday afternoon.

"The Fed would still like to get a hike or two done," according to Rieder. "The markets' interpretation is a bit extreme."

Rieder's views about the Fed and financial markets are widely followed. BlackRock firm managed $5.98 trillion as of the end of 2018, with a third of that in bonds. He also sits on the New York Fed's Investor Advisory Committee on Financial Markets.

In a sharp reversal of his stance in December, Fed Chairman Jerome Powell said last week that the Fed has "the luxury of patience" in deciding whether to raise rates again.

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Economist Mohamed El-Erian predicts that for its next trick, the Federal Reserve is more likely to cut rates instead of hiking them even higher once again.
el erian, fed, rate, cut, hike
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2019-24-05
Tuesday, 05 February 2019 11:24 AM
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