Top economist Mohamed El-Erian expects the Fed to keep interest rates higher for longer - and warns Russia's warmongering has clouded the market outlook
Jason Reed/Reuters
- Mohamed El-Erian sees the Fed's impending rate hike as part of a new policy paradigm.
- The top economist predicts interest rates will rise higher and faster, and for longer.
- El-Erian rang the alarm on Russia mobilizing more troops and threatening nuclear war.
Mohamed El-Erian has warned investors to brace for interest rates to climb higher, rise faster, and last longer. He also cautioned that Russia's latest escalation in its war with Ukraine is further clouding the market outlook.
"The likely 75 bp hike, and the forecasts and signaling that come with it, will be part of the HFL policy paradigm in the advanced world—higher, faster and for longer on rates," he tweeted on Wednesday. "The related complexities have been accentuated by the Russia news just now."
Allianz's chief economic adviser was referring to the Federal Reserve potentially hiking its benchmark rate by 75 basis points to between 3% and 3.25% later on Wednesday. The US central bank is also expected to pencil in further increases as it seeks to curb inflation, which spiked to a 40-year high in June.
Meanwhile, Russian President Vladimir Putin on Wednesday ordered the mobilization of around 300,000 more troops to support his invasion of Ukraine, and hinted he would respond with nuclear force to any threat to his nation's territory.
El-Erian has repeatedly underscored the difficulty of conquering inflation without devastating consequences. On Saturday, PIMCO's former CEO and co-chief investor raised the prospect of global "stagflation" — a painful combination of stagnant economic growth, surging unemployment, and stubborn inflation.
The economist also warned earlier in September that Europe's energy crisis, China's ongoing lockdowns, and the US's elevated inflation and waning consumer demand were making global growth more fragile. As a result, central banks are more likely to drive their economies into recession, he said.
El-Erian's latest tweet suggests he sees persistently higher rates, and a greater risk of the Fed and its peers botching their inflation fights, scuppering economic growth, and causing widespread job losses.
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