Mohamed El-Erian is chief economic adviser for Allianz, in an interview with Reuters
Main points (in summary)
- 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"
Motown
