El-Erian Warns Against Rate Hikes Amid Oil Price Volatility
Allianz Chief Economist Mohamed El-Erian has urged the Federal Reserve to keep interest rates unchanged this month, citing rising risks in oil and bond markets.
El-Erian noted that market expectations assign a 60% probability to a 25-basis-point rate hike at the upcoming Federal Open Market Committee (FOMC) meeting.
The likelihood of keeping rates steady is 40.6%, while the chance of a cumulative 25-basis-point hike is 59.4%. For October, the probability of holding rates steady is 29.8%, with a 54.4% chance of a cumulative 25-basis-point increase and a 15.8% chance of a cumulative 50-basis-point increase.
El-Erian emphasized that he does not believe rates should be raised, citing stable inflation expectations, productivity enhancements driven by artificial intelligence (AI) and other innovations, and the nature of current inflationary pressures.
He warned that tightening policy could push the housing market to a critical threshold and further weaken it. El-Erian also noted that with oil prices approaching $100 per barrel, the range of potential outcomes remains unusually wide, depending on developments in the Middle East.