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Tags: el-erian | federal reserve | rate | hikes

El-Erian: Don't Underestimate Number of Fed's 2017 Rate Hikes

(Dollar Photo Club)

By    |   Wednesday, 28 December 2016 11:20 AM EST

Bloomberg view columnist and Newsmax Finance Insider Mohamed El-Erian advises savvy investors not to underestimate the number of times the Federal Reserve will hike interest rates in the new year.

"For the first time in a very long time, I think the market is underestimating how much the Fed will actually hike," El-Erian told CNBC. "We're getting out of the world in which the Fed is the only game in town policy-wise."

He thinks the central bank's consensus for three rate hikes in 2017 was a minimum amount. "If it's not three [hikes], it's because it's more than three," he said.

Fresh economic forecasts, the first since Trump won the Nov. 8 election on promises of tax cuts and increased infrastructure spending, showed policymakers shifting their outlook to one of slightly faster growth, lower unemployment and inflation just under the Fed's 2 percent target.

The projected three rate increases next year would be followed by another three increases in both 2018 and 2019 before the rate levels off at a long-run "normal" 3.0 percent. That is slightly higher than three months ago, a sign the Fed feels the economy is still gaining traction.

El-Erian said the Fed's hawkishness will stem from a more positive outlook on incoming economic policy and the condition of the U.S. economy next year.

"I think the Fed will become more strategic," he said. "[It's] going to be comfortable about the overall state of the economy, it's going to see a fiscal expansion coming, and it's going to be less data-dependent and more strategic."

He didn’t give a timetable of rate hikes, but doesn’t expect the central bank to act in January. He expects Fed officials will want to wait until after the Trump administration has settled into office.

"Don't underestimate their inclination to normalize after too many years at artificial low rates," El-Erian said.

El-Erian isn't the only investment guru to caution investors to keep a sharp eye on the Fed next year.

CNBC’s Ron Insana warns there are a variety of risks to this aging bull market, "from economic to political to geo-political issues that could suddenly appear on the horizon."

But the risk he is most concerned about going into 2017 is “if the economy accelerates and inflation moves above the Fed's 2 percent target, the central bank could move rates up farther and faster than currently anticipated by the stock market,” he wrote for CNBC.com.

Fellow Newsmax Insider Jared Dillian agrees with El-Erian that there may be more Fed rate hikes in the new year than most investors expect.

"I am betting that we will get more than three rate hikes next year. I am betting that we will get four—or more. It’s possible that fed funds will be close to 2% at the end of next year," Dillian wrote for Newsmax Finance.

(Newsmax wire services, Reuters and Bloomberg news contributed to this report).

© 2023 Newsmax Finance. All rights reserved.


StreetTalk
Bloomberg View columnist and Newsmax Finance Insider Mohamed El-Erian advises savvy investors not to underestimate the number of times the Federal Reserve will hike interest rates in the new year.
el-erian, federal reserve, rate, hikes
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2016-20-28
Wednesday, 28 December 2016 11:20 AM
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