Market turmoil has pushed the U.S. Federal Reserve’s plan to raise interest rates out to December, according to Mohamed El-Erian, a Bloomberg View columnist and chief economic adviser at Allianz SE.
Financial markets have been convulsed by concerns over weaker Chinese growth, with trillions of dollars erased from the value of global equities since the country’s surprise devaluation of the yuan on Aug. 11. On Wednesday, New York Fed President William Dudley raised the possibility that market developments might make a September rate increase less likely.
“The reason why September is now a question mark and the reason why Dudley said the case was less compelling is because it cannot be the great house in a fluid neighborhood and ignore the neighborhood, so the Fed will look at the rest of the world, the Fed will not want to add to financial instability,” El-Erian, the former chief executive officer of Pacific Investment Management Co., said in a Bloomberg Television interview Thursday. “Because of that, the Fed will wait until December.”
Futures traders are betting the Fed will push back a rate hike: odds of an increase in September have fallen to 30 percent from 40 percent at the end of July, according to data compiled by Bloomberg.
The recent suggestion by Ray Dalio, the billionaire founder of Bridgewater Associates, that the Fed may resume quantitative easing even if it first raises benchmark rates by a fraction of a percent is off the mark, according to El-Erian.
“Whenever there’s a bit of market turmoil, people immediately look for the Fed to do more,” El-Erian said. “QE4 is wishful thinking.”