Taps Coogan – October 5th, 2022

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Mohamed El-Erian, Allianz Chief Economic Advisor, recently spoke with CNBC to warn that investors need to give up the “love affair” with the idea that the Fed is going to pivot.

 

Some excerpts from Mr. El-Erian:

“We’ve got to stop with the love affair with the pivot. We saw what it resulted in during the summer. If the Fed pivots, we’ve had either an economic accident or a market accident. We should not be wishing for that because the journey to a pivot will be painful. I’m not surprised we are seeing green. Let’s not forget how horrible September (was)… Ask yourself the question. Are you confident that the Fed can not only balance control of inflation and employment but also financial stability?”

We could not agree more and have noted repeatedly that investors seem to be skipping over the ‘why’ of a pivot by the Fed or a drop in inflation. To take an extreme example, inflation dropped a lot in 2008, over 5%, and the Fed cut rates to zero. People who realized in early 2008 that inflation would drop and the Fed would cut rates aggressively and thought that that was anything other than bad news got taken to the cleaners. 

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