Hard landing possible, reiterates his view that Jay Powell was more dovish than markets had expected, says there is still only a 55% chance of a soft landing.
Notes:
- Following up on his op-ed in the FT, El-Erian argues we will see more volatility following Jay Powell’s Johnson Hole speech.
- Speaking on CNBC, reiterated that Powell was very dovish. Said many agreed with 2 quotes: “…the time has come for policy adjustment…” and “…’the direction of travel is clear..” However, the market was surprised by the additional dovish statement “..we do not seek further cooling inlayer market conditions…”
- Says the market has interpreted this to see the fed shifting to a single mandate on employment, rather than moving back to a dual mandate.
- El-Erian also said there are a lot of uncertainties, noting that it’s unclear whether the full effects of the rate hiking cycle have been felt. He also noted that it could take some time for the effects of rate cuts to take effect and a 55% chance of a soft landing, echoing comments by Rebecca Patterson.
- Advises investors to keep an eye on PCE this Friday, but also look at the retail earnings we will see int he next few days for clues as to whether the fed can stick to a dovish stance.
