Markets are overpricing the pace and amount of Federal Reserve interest-rate cuts as they are overlooking stubbornly high inflation, according to economist Mohamed El-Erian.

“I do think that we get to the pivot, but relative to what the market expects, it won’t be as fast or as deep,” said El-Erian, president of Queens’ College, Cambridge, and a Bloomberg Opinion columnist.

“I wouldn’t be surprised if we start later, probably the beginning of the summer, and I wouldn’t be surprised if we end up the year with cuts that are closer to what the Fed has signaled, which is 75 basis points as opposed to what the market has priced in,” El-Erian said.

Traders are currently pricing in about 140 basis points of easing this year, down from a recent peak of about 175 basis points, after Fed Governor Christopher Waller this week pushed back against aggressive rate cuts and US retail-sales data beat forecasts.

Markets are underestimating service-sector inflation, which is still running higher than goods’ inflation and will need to come down much faster, El-Erian said at a UBS Global Wealth Management conference in Hong Kong.

A change in the Fed’s price mandates may damage its credibility, “if you’re a central bank that’s made multiple policy mistakes in the past few years, the last thing you want to do is give the impression that you’re going to change your target, so don’t expect any change in the inflation target,” he said.

Treasury 10-year yields may end the year closer to 4.5% than 3.5%, El-Erian said in response to a question at the conference, while US GDP growth could come in about 1%-to-2% as the economy normalizes from the previous year’s pandemic savings boost.

This article was provided by Bloomberg News.