Submitted by Taps Coogan on the 23rd of December 2018 to The Sounding Line.
Allianz chief economic advisor Mohamed El-Erian recently spoke to CNBC about the Fed’s recent rate hike and the market sell-off that has followed. He reiterates his belief that despite the market collapse, economic fundamentals are ‘solid’ in the US.
“Let me tell you the good, the bad, and the ugly. The ‘ugly’ is it feels terrible. Prices are gapping. There is no way to hedge. Even good names get thrown out with bad names. This is very unsettling. The ‘bad’ is, if we are not careful, and this is a message to Washington…, bad market technicals can become bad economics… The ‘good’ is this was going to happen at some point. It would have been better if it happened a little bit earlier. It would have been less violent. But, it is going to create value and it is going to create a sustainable basis going forward.”
“I think the actions weren’t a problem. I think it was the communication of the actions that were a problem and part of that is because you don’t have people in the Fed… that are sensitive to markets and have lived markets on the trading floor… (Jerome Powell) is a private equity guy. I have huge respect for him… but he didn’t live on the trading floor. He hasn’t seen how technicals can dominate markets and completely ignore fundamentals… They (the Fed) are trying to break the co-dependence and the fact that the markets have held the Fed hostage… We will live through this. The economy is solid… I think that the Fed can self-correct by simply saying ‘we are very sensitive to what’s happening to the rest of the world and we will continue to asses spill backs’ and second to hint that balance sheet policy is not off the table.”
There is more to the discussion, so enjoy it above.
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