Quarter-point rate cut coming in July: Mohamed El-Erian

The Federal Reserve has set its sights on a quarter-point rate cut at the end of July to validate the rate hikes it issued throughout 2018, according to Allianz Chief Economic Adviser Mohamed El-Erian.

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“They made a mistake last year. They shouldn’t have hiked four times. They did and they’re looking for justification to take it back,” he said exclusively on “The Claman Countdown” Monday.

El-Erian said the U.S. central bank is viewed as “confused and confusing” which adds an unusual degree of uncertainty to how the market is pricing.

“We having an uncertainty of what they are going to do, why they are going to do and how they are going to do it,” he said.

Federal Vice Chair Richard Clarida, speaking exclusively with Liz Claman, hinted that an interest rate cut is coming July 31. He said the central bank will put in place a policy that will sustain a strong economy and stabilize the inflation target rate.

“The research has indicated that when you are close to zero, it’s also relevant to think about acting preemptively when you can if you can avoid a more significant downturn later on,” Clarida said on Thursday.

El-Erian said the most powerful central bank in the world is signaling its paying closer attention to the global economy.

“You have this dichotomy, as you just pointed out, that we have a strong economy and yet we still talking about, not just interest cuts, but will it be 25 or 50,” he said.

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The Federal Open Market Committee agreed to keep the fed fund rate unchanged during its June meeting. Chairman Jerome Powell signaled on Capitol Hill several weeks ago that the central bank will lower the benchmark federal funds rate at the end of the month.