The discord between the Federal Reserve’s policy signals and interest-rate expectations will lead to an “unsettling” resolution of economic volatility or erosion of Fed credibility, says top economist Mohamed El-Erian. Just today, Dallas Fed President Lorie Logan said that the current economic data points do not justify skipping a rate increase at the next FOMC meeting. “We haven’t yet made the progress we need to make. And it’s a long way from here to 2% inflation,” said Logan. Tesla CEO Elon Musk predicts a tough year ahead for everyone, calling the Fed’s rate hikes “somewhat of a brake pedal on the economy.” “My concern with the way the Federal Reserve is making decisions is they’re just operating with too much latency … The Federal Reserve was slow to raise interest rates, and now I think they’re going be slow to lower them,” said Musk.
Markets Insider/Zinya Salfiti
Mohamed El-Erian says the discord between Fed signals and investors’ interest-rate expectations could ignite market turbulence
The ongoing discord between the Federal Reserve’s policy signals and financial-market expectations is unusual, and could end up sparking a bout of market volatility or eroding the central bank’s credibility, according to top economist Mohamed El-Erian.
The Fed has been persistent in its war against inflation, and raised interest rates for the 10th time in a row this month. While officials have signaled a possible pause in rate hikes, they haven’t suggested that outright cuts are on the way.
El-Erian is concerned that financial markets are not responding to that signaling – as money-market prices show investors are factoring in lower rates by year-end.
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CNBC/Jeff Cox
Dallas Fed President Logan says current data doesn’t justify pausing rate hikes yet
Dallas Federal Reserve President Lorie Logan said Thursday that the economic data points so far don’t justify skipping a rate increase at the central bank’s next meeting in June.
While noting some progress in bringing down inflation and cooling the labor market, Logan said the Fed still has work to do in achieving its goal for price stability. Logan is a voting member this year of the rate-setting Federal Open Market Committee.
“After raising the target range for the federal funds rate at each of the last 10 FOMC meetings, we have made some progress,” she said in prepared remarks for a speech to bankers in San Antonio. “The data in coming weeks could yet show that it is appropriate to skip a meeting. As of today, though, we aren’t there yet.”
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Fox Business/Eric Revell
Musk warns of economic headwinds, says Fed will be slow to lower rates
Tesla CEO Elon Musk warned on Tuesday that the economy is in for a challenging year ahead and said the Federal Reserve will be too slow to lower interest rates as economic conditions worsen.
Musk was interviewed by CNBC’s David Faber following Tesla’s annual meeting and asked Musk about how the Fed’s policy will make it a tough year for Tesla. Musk responded that it will be a tough year “for everyone, not just Tesla” and attributed it to the Fed’s recent rate hikes to tamp down stubbornly high inflation.
“You can think of raising the Fed rate as somewhat of a brake pedal on the economy, frankly. It makes a lot of things more expensive – certainly things that are bought with credit,” Musk said. “But then it has downstream effects even on things that aren’t bought with credit.”
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