Former Pimco CEO Mohamed El-Erian discusses why the Federal Reserve should cut rates in July on ‘The Claman Countdown’.
Disappointing economic indicators are taking hold as markets prepare for an expected rate cut this July, and a prominent economist and academic warned there is more of a slowdown than previously anticipated.
“So far, we’ve had disappointing retail sales. We’ve had disappointing manufacturing PMI numbers. The ISM numbers were disappointing. [Tuesday’s] Vacancies were well below expectations,” Mohamed El-Erian, president of Queens College at the University of Cambridge, told “The Claman Countdown.” “Citi has this ‘surprise index,’ and we’ve had nothing but negative surprises. “
“And all that tells us is that the economy is slowing much faster than most people, including the Fed, expected,” he continued.
According to the ADP National Employment Report released Wednesday morning, hiring by US companies slowed more than expected in May, pointing to a job market that is continuing to cool in the face of higher interest rates.
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Companies added 152,000 jobs last month, below the 175,000 increase forecast by LSEG economists and the downwardly revised April increase of 188,000. It marked the worst month for job creation since January.
Economist Mohamed El-Erian predicts that the Federal Reserve, led by Chairman Jerome Powell, above, will cut rates in July and that there is still a 35% chance of a recession. (Getty Images)
Data released on Tuesday showed that US job openings fell in April to the lowest level in more than three years, another sign that the labor market is starting to weaken in the face of higher interest rates. and stubborn inflation.
The Federal Reserve raised interest rates 11 times starting in March 2022 in an effort to curb inflation and cool the labor market. Policymakers have suggested that rapid wage growth — the product of a strong labor market — was a contributing factor to the inflationary crisis that has destroyed millions of Americans’ pocketbooks in recent years.
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“This is where the policy error comes in. Monetary policy acts late,” El-Erian said. “So you’re really targeting tomorrow’s economy. But if you’re doing it based on yesterday’s data, you’re likely to be wrong.”
“When they decided that inflation was transitory, when people, including us, told them, ‘It’s not transitory, pay attention,’ they were afraid to make a big strategic call,” the economist added. “And I think that’s where we have the danger now.”
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El-Erian said he believes there is still a 35% chance the US economy will enter a recession.
“We entered 2023 with people saying a 100% probability of a recession and the American economy surprises on the rise,” he emphasized. Unfortunately, we entered this year a little too rosy, and now the economy is slowing down.”
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FOX Business’ Megan Henney contributed to this report.
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