Economist El-Erian: Markets exaggerate the magnitude of the Fed's rate cuts

Traders currently expect the Fed to cut interest rates by 100 basis points by the end of the year. Economist Mohamed El-Erian said they have overstated the likelihood of a big Fed rate cut by the end of the year: "The fact that the market has priced in so many rate cuts now is problematic in my opinion." In recent days, traders have consolidated bets in the swaps market that the Fed will cut interest rates by up to 100 basis points by the end of the year, with a 25 basis point or even 50 basis point cut possible in September. The minutes of the Fed's July meeting showed that several officials saw a rate cut as a possibility next month, while the latest employment data showed that job growth was far less strong than previously reported, further suggesting that a rate cut is almost certain. According to El-Erian, the Fed will cut interest rates by 75 basis points by the end of the year. "There is a view that a soft landing needs to be reconciled somehow to achieve a hard landing policy," he said. "The market will adjust one day."