On Wednesday, the Federal Reserve decided to hold interest rates at a 23-year high, coinciding with calming inflation data from May's Consumer Price Index (CPI) out that morning. The May Producer Price Index (PPI) saw wholesale prices drop by 0.2% month-over-month. Fed Chair Jerome Powell stated he is aware of the economic ripple effects of holding rates too high for too long will have, while also maintaining caution over rushing into a rate hiking cycle.
Allianz Chief Economic Advisor Mohamed El-Erian tells Yahoo Finance's Seana Smith, Madison Mills, and Julie Hyman he believes there is a 35% chance the Fed may start cutting rates too late:
Already, the cushions that small businesses have and poor households have have already been eroded. Pandemic savings have gone, debt levels are high, delinquencies are going up. So I worry that if they carry through on what is in the SEP {Summary of Economic Projections dot plot], that will be too late," El-Erian outlines. "Now, the good news... is I strongly believe that had they had the CPI data a couple of days earlier and had they had today's PPI data, we would have gotten a different SEP."
El-Erian finds equity markets (^DJI, ^IXIC, ^GSPC) are totally ignoring the Fed, taking into account the massive run-ups the S&P 500 and Nasdaq Composite have seen over the past week. He also weighs in on headlining trends in the US labor market and Americans' income.
For more expert insight and the latest market action, click here to watch this full episode of Catalysts.
This post was written by Luke Carberry Mogan.
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