r/finance • u/thisisinsider • 24d ago
Mohamed El-Erian warns markets could pressure central banks into further rate hikes despite weakening economic fundamentals
https://www.businessinsider.com/economist-mohamed-el-erian-dangerous-rate-hikes-markets-economy-warsh-2026-9?utm_source=reddit&utm_medium=social_manual&utm_campaign=reddit_dist_r_finance&utm_content=manual_v1&utm_term=5cf7fd908
u/AdministrationSea96 23d ago
He doesn't know the sh1t. Usually he avoids giving clear predictions but when he does he usually gets it wrong. Recently he was confident that FED isn't going to raise interest rates in September and until end of the year.
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u/McKoijion 24d ago
Everything is great. Anyone who uses the term stagflation is an antisemite. AI and AIPAC are as American as apple pie.
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u/IntroductionOk9280 24d ago
The bond market is looking for forward guidance from the Fed. It's rebelling, as the Fed chair has not yet gained credibility with the bond holders.
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u/Sportfreunde 24d ago
Nope this is a global issue not just the US
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u/tquinn35 23d ago
Yeah it's not a US issue and has nothing to do with the confidence in Warsh. The US market worked fine under Greenspan without forward guidance.
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u/Moist-Construction59 24d ago
Other way around: Fed follows the market.
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u/IntroductionOk9280 24d ago
Yes that's the problem, the bond market is looking for leadership from the Fed that they are not getting. The Fed in the past has always tried to show leadership and guidance.
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u/tquinn35 23d ago
Greenspan famously led the FED for nearly 20 years without forward guidance. It wasn't till Bernanke that forward guidance became standard. Before Greenspan Volcker was even more secretive, he didnt issue post-meeting statements, press releases, or policy explanations. Going back before that Burns and Miller didnt offer forward guidance. You would be hard pressed to find any fed chair before Bernanke that offered forward guidance.
So it's incorrect to say "The Fed in the past has always tried to show leadership and guidance". They simply did not and were generally far more secretive.
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u/IntroductionOk9280 23d ago edited 23d ago
Greenspan always telegraphed his next interest rate decision in Greenspeak. The stock market always knew that he had their back, you probably remember the famous Greenspan put.
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u/tquinn35 23d ago
Greenspeak generally referred to how he talked not necessarily anything to do with forward guidance.
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u/Moist-Construction59 24d ago
They try to show leadership, but it's all a ruse. The bond market knows this. The Fed doesn't set interest rates for anything but overnight inter-bank lending.
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u/PutinBoomedMe 24d ago
Saw this guy speak once while he was at Allianz. Underwhelming to say the least. He was a good presenter 20 years ago and became a talking head. He's coasted on that for years. He's the Stephen A Smith of finance
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u/caroline_elly 24d ago
He's correct that it would be misguided to rely on monetary policy alone to fix inflation.
Higher rates won't fix Iran war problem, and high rates hurt housing construction which is necessary to boost housing supply. It's a crude tool to dampen demand, but the root of the problem is on the supply side
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u/followedthemoney 24d ago
Higher rates will fix most (or all) of the problems you listed. They make borrowing painful, making endless wars and military funding impossible. They crush the housing market, and ultimately depress the economy, forcing people to reckon with the polticians propping up these military and inflationary policies.
We don't have a housing supply problem, we have a price problem. That's a direct result of inflation coming from artificially depressed rates. For almost 2 decades now.
We have endless wars because presidents do whatever they want without financial constraints, and there's evidently no amount of money America won't spend on bombs and guns.
Introduce some reality, some opportunity cost, and politicians like Trump will have to respond or get kicked out. I'm fine with both options.
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u/caroline_elly 24d ago
I agree that higher rates will provide the right incentives to be fiscally responsible, but it doesn't translate 100% to actual fiscal responsibility.
Also, the Fed controls only short-term rates. The market has already punished longer term yields but the administration hasn't budged yet
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u/tquinn35 23d ago
I agree we dont have a housing supply problem. The artificially low rates have drawn investors into the market and fucked up everything.
I am not sure who peddles the housing supply shortage thing but its a lie.
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u/CrazyLlama71 23d ago
The housing supply problem is very localized to certain areas. All of them popular places. There are no empty units near me and homes sell within a couple weeks, even now with high rates. I have read homes sit in other areas, primarily the south, and there are many vacant units. Location, location, location.
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u/Frequently_lucky 24d ago
Broken clock.
How this clown ever held a high position is a forever mystery to me.
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u/cronies4life 24d ago
from another perspective, stopping the iran war and repealing corporate tax cuts would be more effective to rein in inflation
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u/Frequently_lucky 24d ago
The deficit has to come down, and quickly, agreed. Regarding the (idiotic) Iran war, it should not have started but now that it did, you cannot just say 'mission accomplished' and leave one of the most important regions in the world in the hands of a batshit theocracy.
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u/Moist-Construction59 24d ago
Yes, you CAN leave one of the most important regions in the world in the hands of a batshit theocracy.
I know that goes against 60 odd years of American exceptionalism, doesn’t make it wrong. And besides, what’s the alternative? Continue to cower 300 miles away while watching the global economy burn, in order to “save face”?
We did it to ourselves. Iran has played this whole situation quite well, all things considered.
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u/tquinn35 23d ago
We have done that in the 2/3 last major wars. The Taliban still controls Afghanistan and the North Vietnamese controlled Vietnam after the Vietnam war. So I would say we are pretty good at doing it, why waste many years and lives in the process.
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u/cronies4life 24d ago
technically if u can increase local oil production in usa via some defence production act, the iranians have one less card to play, and perhaps more willing to fall in line
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u/Frequently_lucky 24d ago edited 24d ago
Unless the US puts export restrictions on oil exports (and fucks the global economy even more), it's still a global market with a unified price, adjusting for variables like crude type and transportation costs.
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u/PlanetCosmoX 24d ago edited 24d ago
Well that’s obvious, because what he said is exactly what is happening and if you don’t understand that, then you won’t understand his position.
Why would you use the sledge hammer of a rate change when a policy based scalpel is available especially when all indicators are showing that the economy is in balance tilted towards decline.
And of course you clearly already know that virtually all recessions have been triggered by the Fed, doing exactly what the Fed is doing now? But you don’t need history do you.
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u/tomonota 21d ago
Remember that the 2007 final fed increase in November created the
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u/tomonota 21d ago
Great Recession of 2008.
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u/tomonota 21d ago
The rate hike caused the bond and stock market to crash very quickly. History repeats itself.
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u/Lopsided_Ad24 22d ago
The feedback loop between markets and central banks is probably the most interesting part of this. Expectations can move things pretty quickly.
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u/haveilostmymindor 21d ago
Snort! Sure you do that and then what will happen is you will see far left candidates office taxes on the wealthy will go up monopoly laws will get busted out and likely a massive wave of financial repression that drives debt to gdp ratios down.
All of that as consumer stimulus and higher minimum wages further erode your profits.
So go ahead bond markets fuck around and find out.
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u/Dazzling-Durian-2984 12d ago
the whole piece feels like a reminder that when the bond market starts shouting 90‑plus% for a hike, it's not a lonely Fed jump – it's a signal that markets are already pricing the risk of weakness. el‑erian’s warning that higher rates may be forced by demand rather than fundamentals is spot on if the Fed can’t convince investors that growth and inflation are back in balance. basically the cycle is now a tug‑of‑war between policy and market expectations.
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u/thisisinsider 24d ago
TL;DR: Markets priced the probability of the Fed's latest rate hike above 90%, a dynamic Mohamed El-Erian says can pressure central banks to validate traders rather than respond to economic fundamentals. Samuel O'Brient reports that El-Erian believes further reliance on rate hikes could unnecessarily weaken the economy and place a disproportionate burden on lower-income households, while lawmakers should address supply-and-demand causes of inflation.
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u/big_deal 24d ago
The headline and TLDR sounds kind of backwards. The root cause of rising rates isn't market demand - it's inflationary fiscal policy combined with inflationary trade and immigration policy. It's true that inflation and the corresponding increases in yields required will weaken the economy and place a disproportionate burden on lower-income households. But market demand isn't the cause, it's the reaction to fiscal policy and economic conditions.
In the actual article, El-Erian says "Monetary policy isn't the best response tool for today's economic and financial challenges." This makes a lot more sense than the headline.
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u/Sportfreunde 24d ago
Global debt crises are going from the simmer to a bubble.