Mohamed El-Erian.Rob Kim/Getty Images
If the Fed appeases the market, it could risk a sharp reversal later, Mohamed El-Erian wrote in the FT.
The more the Fed gives in to investors on rate cuts next year, the more they will press for even more dovishness.
“If investors price in additional rate cuts, it is harder for the Fed to pursue its mandate without a big market reaction.”
Markets are jubilant about a Federal Reserve policy pivot to rate cuts next year, but there’s a risk of the central bankers giving into those expectations, according to economist Mohamed El-Erian.
To ease the disconnect between the market and the Fed’s policy stance, the Fed may go too far and be forced to about-face, he wrote in the Financial Times on Sunday.
“The specific risk today is that, wishing to avoid unsettling market volatility, the Fed validates the market loosening with sizeable rate cuts but then is forced to reverse course later,” he said.
The problem is that markets will keep demanding more cuts,…
2023-12-18 18:10:18
Source from finance.yahoo.com