Economist El-Erian: Markets exaggerate Fed rate cuts

Traders now expect the Federal Reserve to cut interest rates by 100 basis points by the end of the year. Economist Mohamed El-Erian says they are overstating the likelihood of a big Fed rate cut by the end of the year: “In my opinion, the market has now digested so many rate cuts that it is problematic.” In recent days, traders have consolidated bets in the swaps market that the Fed will cut rates by up to 100 basis points before the end of the year, with a possible cut of 25 basis points, or even 50 basis points, in September. Minutes from the Fed's July meeting showed that several officials believe a rate cut is likely next month, and the latest jobs data showed that job growth was much less robust than previously reported, further suggesting that a rate cut is almost a foregone conclusion. According to El-Erian, the Fed will cut rates by 75 basis points before the end of the year. There is a view that there is a soft landing to be achieved through a hard landing policy, and the two need to be reconciled in some way,” he said. The market will one day make an adjustment.