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Mohamed A. El-Erian

Fed Starts Getting Pulled in Different Directions

The rationale for raising rates amid increasing market turmoil seems a bit murkier. 

Things seemed clear just a minute ago.

Things seemed clear just a minute ago.

Photographer: Mark Wilson/Getty Images North America

The run-up to the Federal Reserve’s rate-setting meeting on Dec. 18-19 is sure to intensify a debate on the central bank’s policy stance. It is a difference of views that, although unlikely to be resolved any time soon, sheds important insights on a likely contributor to higher and at times unsettling market volatility. 

Some point to the recent turmoil in financial markets and the slowing global economy as signs that the Fed has already gone too far in normalizing monetary policy through realized and intended measures. They point to the recent sharp sell-off in stocks and the repeated cuts in global growth projections. They welcome what they regard as an overdue walkback by Fed Chairman Jerome Powell, and they anticipate a downward revision of the central bank’s economic projections and its blue dots (that is, guidance on the path of future rate hikes) when he and his Federal Open Market Committee colleagues meet next week.