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El-Erian Expects Fed to Correct on Unemployment, Inflation

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Bloomberg Jun 9, 2023 11:30 · 109.8k Views

Mohamed El-Erian, chief economic adviser at Allianz and Bloomberg Opinion columnist, explains his expectations for the Federal Reserve’s June policy decision and their projections on unemployment and inflation with Jonathan Ferro on "Bloomberg The Open." El-Erian’s opinions are his own.

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Transcript

  • 00:00 I was looking at some labor market expectations and forecasts from Ellen Zettner of Morgan Stanley.
  • 00:04 Mohammed,
  • 00:05 her and the team are looking for 4% unemployment,
  • 00:08 4 Q 23.
  • 00:10 They're looking for 4.4 in four Q 24.
  • 00:13 Their expectation for unemployment
  • 00:16 is 12 months further out than where the Federal Reserve is at year end.
  • 00:19 Year end, the Federal Reserve's at 4 1/2.
  • 00:22 Morgan Stanley and Zettner get close to four and a half, 12 months later.
  • 00:26 Mohammed, it's not just the decision that we're teeing up for
  • 00:29 next week is the projections as well.
  • 00:31 What do you think those projections are going to look like over the Fed?
  • 00:34 So I think they're going to correct yet again.
  • 00:37 You know, they've, they've been
  • 00:39 too
  • 00:40 pessimistic on the unemployment rate
  • 00:42 and I think that they're going to correct that because I don't see us getting to where they think we're going to get by the end of the year.
  • 00:48 I think the unemployment rate will be lower.
  • 00:50 I think they're going to correct the inflation forecasts and they're going to take them up yet again.
  • 00:55 John, if you talk about the labour market, keep an eye up
  • 00:58 for wages.
  • 00:59 Wage growth, depending on what you look at,
  • 01:02 is
  • 01:03 getting steady at around 5%
  • 01:06 and that is too high for a 2% inflation target.
  • 01:09 Would you expect that median dot then to come up in the dot plot on Wednesday?
  • 01:15 Yeah, I do.
  • 01:17 I think they'll go there,
  • 01:19 but it's going to be the press conference is going to be absolutely the most interesting element of next Wednesday.
  • 01:26 What is it about the press, Sir, do you think is interesting?
  • 01:30 So first
  • 01:31 let's see where we start from.
  • 01:33 They have guided the market
  • 01:35 as you know, the top Fed official, a top Fed official guided us to expect a skip
  • 01:41 and that will make sense if Tuesday's inflation data comes in well below
  • 01:46 forecasts.
  • 01:47 Why?
  • 01:48 Because this is a highly
  • 01:49 data dependent Fed.
  • 01:51 Having said that, they haven't dealt with the larger framing issue and
  • 01:55 you're not going to get me to front run my FD article again.
  • 01:58 We have to wait for Monday,
  • 02:00 but there's a larger framing issue
  • 02:02 that is not being looked at.
  • 02:04 So
  • 02:06 how they describe that, the skip
  • 02:08 which the market expects is going to be critical.
  • 02:10 Now if they don't get favorable inflation
  • 02:13 numbers, they're in a really hard situation
  • 02:17 because they will have to surprise the market.
  • 02:20 So it's going to be next week is going to be absolutely fascinating.
  • 02:22 Tuesday, Wednesday
  • 02:24 is going to be
  • 02:25 probably the most interesting 24 hours,
  • 02:28 a little bit more 36 hours that we've seen for a long time.