Mohamed El-Erian Sees Fed Rate Increase Delayed by Market Rout

El-Erian: Window for September Fed Rate Hike Has Closed

Volatility in global financial markets is “worrisome” and will hamper the Federal Reserve’s ability to raise interest rates in September, said Mohamed El-Erian, chief economic adviser at Allianz SE.

The Fed missed the chance a few weeks ago to boost interest rates from near zero for the first time since 2006, El-Erian, the former chief executive officer of Pacific Investment Management Co., said in an interview Tuesday on Bloomberg Television.

“The window was open a few weeks ago when you had strong domestic economy, which you still do, you had pretty neutral international economy and the financial markets were in relatively good shape,” said El-Erian, a Bloomberg View columnist. The second two factors “have turned violently against the Fed, so I don’t think the Fed will take the risk of hiking in this environment, because if it makes a mistake, it will end up making a mistake that will spill back on to the U.S. economy.”

Futures traders are betting the Fed will push back a rate hike: odds of an increase in September have fallen to 26 percent, down from 40 percent at the end of July, according to data compiled by Bloomberg.

The Standard & Poor’s 500 Index fell 1.3 percent today in New York, reversing a rally of as much as 2.9 percent in the last 30 minutes of trading.

“To have that sort of decline at the end is really worrisome about the functioning of the market,” El-Erian said.

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