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Tags: el-erian | market | rate | hikes

El-Erian: Global Market Sell-Off Won't Stop Fed Rate Hikes

(Kathy Willens/AP)

By    |   Friday, 26 October 2018 08:52 AM EDT

Investment guru Mohamed El-Erian predicts that the recent global stock-market plunge won’t force the Federal Reserve to reconsider hiking interest rates.

The chief economic adviser at Allianz told CNBC on Friday it was "not surprising" to see a recent spike in market volatility because the Fed has been "very insistent" with its plan to raise interest rates this year and next — without saying "a single soothing word" during the recent bout of selling, CNBC.com reported.

"I don't think the party is over. I think what we are seeing is a transition in regimes," El-Erian told CNBC.

"One from where markets were comforted by ample, predictable liquidity to now having to recognize that divergent fundamentals are going to be the driver of asset prices," said El-Erian, also a Bloomberg Opinion columnist and Newsmax Finance Insider.

To be sure, one Fed official said the recent cratering of stock markets is nowhere near severe enough to rattle confidence and significantly hurt U.S. business and consumer spending.

In a speech, Loretta Mester, president of the Cleveland Fed, reinforced the U.S. central bank's steady-as-she-goes expectation to keep gradually raising interest rates in the face of a nearly month-long fall in major U.S. equity indexes, which has been driven by worries over the effects of U.S. tariffs and a slowdown in China, Reuters reported.

"While a deeper and more persistent drop in equity markets could dash confidence and lead to a significant pullback in risk-taking and spending, we are far from this scenario," said Mester, who leans somewhat hawkish.

"Similar to the swings in the market we saw earlier this year, the movements of late do not seem to be signaling that investors are becoming overly pessimistic," she added. 

The roughly 7 percent selloff in the S&P 500 this month has also reflected concerns over corporate earnings and higher borrowing costs, investors say. The Fed raised rates last month to above 2 percent, and expects to hike again in December amid what Mester called a “very strong” labor market.

Overall, she said, the economy is doing “very well,” with inflation at the Fed’s 2 percent goal and business and consumer spending expected to remain robust, with no strong pullback in a cooling housing market.

With unemployment at 3.7 percent, its lowest rate since the 1960s, Mester, like Fed Chair Jerome Powell, framed monetary policy as a balance between risks of overheating the economy and unnecessarily choking off its nearly record-long expansion.

© 2024 Newsmax Finance. All rights reserved.


StreetTalk
Investment guru Mohamed El-Erian predicts that the recent global stock-market plunge won’t force the Federal Reserve to reconsider hiking interest rates.
el-erian, market, rate, hikes
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2018-52-26
Friday, 26 October 2018 08:52 AM
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