Fed Unlikely To Cut Rates Soon Amid Inflation Concerns, Says Former Pimco CEO

According to BlockBeats, Mohamed El-Erian, former CEO of Pacific Investment Management Company (Pimco) and President of Queen's College, Cambridge, stated on February 13 that the Federal Reserve is unlikely to cut interest rates for an extended period due to unexpected inflation data. He suggested that the Fed might tolerate higher inflation to safeguard economic growth. El-Erian noted on Wednesday that if the Fed were truly committed to achieving a 2% inflation target, it should theoretically raise interest rates now. However, the reality is that the Fed is more likely to keep rates unchanged, allowing higher inflation to preserve economic growth and the U.S.'s 'exceptionalism.' Due to inflation exceeding expectations, bond traders have postponed their bets on the Fed's next rate cut to December. Swap contracts related to the Fed's future decisions were repriced following the higher-than-expected January Consumer Price Index (CPI). Previously, the market anticipated a rate cut by September. The new interest rate levels indicate that the market is betting on only a 0.25 percentage point rate cut by the Fed this year. Regarding the January CPI data, El-Erian admitted, "On the surface, this is not good news for the Fed. They will continue to reassure the market that everything will be fine, but I believe the pause on rates will last longer than the market expects."