The FED has increased interest rates since late 2021 to combat inflation. However, in recent months, the FED continues to keep interest rates constant depending on positive inflation data.
At this point, while some analysts stated that the FED has come to the end of interest rate increases and will start reducing interest rates in 2024, another assessment came from the famous economist Allianz Chief Economic Advisor Mohamed El-Erian.
Speaking to Bloomberg Radio, Mohamed El-Erian first said that the FED has come to an end in increasing interest rates and that he does not expect an increase in interest rates from the FED from now on.
However, El-Erian pointed out that it is wrong to expect an interest rate cut from the FED in the near future and stated that the FED can tolerate higher inflation instead of pushing the economy into recession in order to reach its 2% target.
“I believe that the FED has completed the interest rate increase, but I do not think this confirms the expectations in the markets that there will be a rate cut next year.
At this point, I believe it is wrong to expect an interest rate cut from the FED in the near future.
Now the Fed can tolerate higher inflation rather than fight it aggressively. In other words, I think the FED should tolerate inflation at a rate of 3% instead of pushing the US economy into recession in order to achieve its 2% target.
Besides these, there are still significant communication problems with the FED and there are still credibility problems with the FED.
“If the Fed does not resolve these credibility issues, the Fed's easing policy may falter.”
