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August 22, 2024 at 03:00 PM
Traders are overplaying the prospects of an aggressive series of Federal Reserve interest-rate cuts before the end of the year, according to Mohamed El-Erian.
“It is problematic in my mind that the market is pricing in so many rate cuts right now,” El-Erian, the president of Queens’ College, Cambridge, and chief economic advisor of Allianz told Bloomberg Television on Thursday. “The market is overdoing it.”
Treasuries slipped Thursday following Wednesday’s gains after the release of the Fed minutes and revisions to U.S. jobs data. A Bloomberg gauge of Treasurys is up some 1.8% so far in August.
In recent days, traders have cemented bets in the swaps market that Fed policymakers will ease policy by as much as one percentage point by year-end, starting in September with the likelihood of a 25- or even 50-basis-point cut.
Minutes from the central bank’s July meeting signaled several officials saw a case for lowering borrowing costs next month, and the latest jobs data — revealing employment growth was far less robust than previously reported — reinforces that the cuts are all but assured.
