Mohamed El-Erian: Fed More Likely to Hike in December
As the post-election markets rally, Allianz Chief Economic Advisor Mohamed El-Erian and former President Obama Economic Advisor Austan Goolsbee, weighed in on the long-term impact of President-elect Donald Trump’s economic policies.
El-Erian explained why the markets soared after Trump’s victory.
“Because traders and investors have embraced the prospect of higher growth and high inflation under President-elect Trump. And they’ve done that for two reasons, content and tone. The content of his comments has been to emphasize the pro-growth elements of his program, high-infrastructure spending, corporate tax reform, deregulation and downplay the anti-trade elements. And the tone, the tone has been incredibly constructive and unifying,” El-Erian told the FOX Business Network’s Maria Bartiromo.
When Goolsbee was asked how much growth could be expected from Trump’s policies, he responded, “not a ton,” and continued to say, “I think the argument that unpaid-for tax cuts that are going to grow the deficit will create magic beanstalk beans that grow the economy I think has been disproven many times. I think they will pass a tax reform of that nature, but I don’t think that that will have a big impact.”
El-Erian then talked about whether Trump’s victory will impact the outlook for Federal Reserve policy.
“We also are having a re-definition, if you like, of what the Fed is likely to do. And with the markets so calm, and inflationary expectations going up, that means the Fed is more likely to hike in December than what people thought immediately after the election results.”
And where can investors look to add growth to their portfolios? El-Erian says the answer may lie outside the United States.
“Where the biggest opportunity is right now is the rest of the world. Particularly emerging market currency. They have been hit very hard by concern about protectionism. And if the President-elect does not go down the road of protectionism, that is where your opportunity is.”
El-Erian believes Trump should use the U.K.’s post-Brexit economic transition as an example of how to implement policy change.
“Be careful about dismantling things quickly, the U.K. example with Brexit is very important. Don’t rush to replace something with nothing. There is a reason why they are going slow on Brexit, because they want to get it right.”