Economist and Queens College Cambridge President Mohamed El-Erian made important assessments on US President Donald Trump’s dismissal of the Bureau of Statistics (BLS) President, the upcoming FED chair change, and interest rate cut expectations in the Morning Brief program.
El-Erian argued that the Fed would have cut interest rates if it had known about the July employment revisions in advance.
El-Erian stated, “If the Fed had seen the July employment revisions before the meeting, it would have definitely cut interest rates,” adding that current market conditions reflect the weakening economy. He emphasized that recent data indicates a significant decline in spending by low-income households, which he said is also reflected in corporate balance sheets. He noted that interest rate cut expectations in the US bond market have reached 90%, making it almost certain that the Fed will cut rates by at least 25 basis points in September.
El-Erian said a 25 basis point cut in September was a certainty, but a larger 50 basis point cut was a possibility. Recalling that the Fed has made similar surprise moves in the past, he said, “Last year, they did nothing in July, and then in September, they made a jumbo 50 basis point cut.”
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El-Erian criticized President Trump’s dismissal of the BLS head, arguing that the move undermined the institutional integrity of US economic data production. “Such dismissals undermine trust in the impartiality of statistical institutions,” he said. “This poses a serious problem for market confidence.”
El-Erian reiterated that Fed Chair Jerome Powell should resign before his term expires. “Powell is leaving in May anyway,” he said. “However, as long as he remains in office, political pressure will increase, and this could undermine the Fed’s independence,” he said, adding that this step would be the best choice to preserve the institutional structure.
Trump’s comments that he is considering Kevin Hassett and Kevin Warsh as the new Fed Chair, while Treasury Secretary Scott Besson’s statement that he does not want the position, also came up on the program. El-Erian said that Chris Warsh and Kevin Warsh would be positive choices for the Fed’s independence.
*This is not investment advice.