Markets are happier at the prospect of Federal Reserve rate cuts than they perhaps should be, wrote Bloomberg Opinion columnist Mohamed El-Erian, who is president of Queens' College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management; and formerly chief executive officer of Pimco. Conditions, he said, are strong for a cut in the federal funds rate in September, but probably only a 25-basis-point one. Although he said a 50-basis-point cut is still possible.
He argued that there has been good economic news lately. The Producer Price Index data came in lower than the consensus forecast, both the headline rate and the core that eliminates the volatile food and energy figures. The Consumer Price Index news met expectations last week and saw the first sub-3% results since 2021. The collection of good news set off an equities rally and a drop in U.S. government bond yields.
All this should be enough to guarantee a 25-basis-point cut in September while leaving open the door to a 50-point if the Fed decides that much stimulus is wise. But what seems likely to happen takes on a 35%-50%-15% probability distribution. The 35% represents the chance of a full-on recession. The 50% figure is the potential for a soft landing for the economy. The remaining 15% would be the possibility of a "bigger but not hotter" economy because of favorable supply shocks.
Continue Reading for Free
Register and gain access to:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.