Mohamed El-Erian still expects Federal Reserve officials to cut interest rates twice this year, even as a blockbuster jobs report pushes traders to rethink the timing.
While rate reductions in the US may not come as early as some on Wall Street had forecast, the Fed is likely to look past signs of economic resilience and start easing its monetary policy, El-Erian, the president of Queens’ College, Cambridge and a Bloomberg Opinion columnist, said on Bloomberg Television.
“If this Fed is continuously overly data dependent, then maybe we don’t get cuts,” he said. “But I am hoping that they will see through the backward-looking data and look forward.”
Treasuries plunged, pushing yields higher, after an advance in US nonfarm payrolls in March exceeded all expectations in a Bloomberg survey of economists. The unemployment rate fell to 3.8%, with more people joining the workforce and able to find a job.
Traders reacted to the report by pushing back their expectations for when the Fed will start cutting interest rates. Treasury futures are now pricing in the first full quarter-point reduction in September, paring back the odds of cuts in June or July.
“The mistake the Fed will make — if it makes a mistake — is being overly data dependent, becoming a play-by-play commentator and not looking through various things,” he said.
This article was provided by Bloomberg News.