While market has recently digested the Fed’s dovish tone with many difficulties, Reuters came out with an interview report mentioning a lead financial personality challenging the central bank’s patience.
The news report said Mohamed Aly El-Erian, the chief economic adviser at Allianz and former CEO and co-chief investment officer of PIMCO, is of the opinion that the Fed will have to change its dovish stance.
Key points and statements (Source: Reuters)
- European economy is cooling more than many investors believe.
- European Central Bank has only limited tools at its disposal to respond to economic weakness while European governments are not prepared to respond with spending.
- A strong U.S. economy may force the Fed to shift its message as soon as by summertime.
- “There’s a real chance that the Fed may have to change signals again from patient on rates. The domestic economy does not justify patience and flexibility. The domestic economy justifies a continued normalization of monetary policy because the labor markets remain strong, because wages are increasing at 3 percent and because business investment is picking up.”
- There are real risks from in Europe and China.
- The extent that the market is pricing in the chance of a Fed rate cut is overdone.
- “I suspect that, with continued solid U.S. economic performance, the Fed will be forced to give a more nuanced message about the rates outlook which may in fact conflict with what’s priced by markets currently”
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