Mohamed A. El-Erian , Columnist

Market-Fed Alignment Is Welcome, But Not Enough

The last mile to the 2% inflation target needs to be run with economic well-being firmly in mind.

March 18, 2024 at 9:27 AM UTC

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

From an expected six or seven cuts to two or three.
Photographer: Moriah Ratner/Bloomberg

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For the first time in quite a while, there is an alignment between what the Federal Reserve is signaling about its interest-rate setting this year and what the markets think will happen. More importantly, this has occurred without major disruptions to the economy and markets. Yet, underpinning it all, is an assumption about policy behavior that has neither been fully endorsed by the Fed nor sufficiently internalized by markets.

After diverging quite substantially for an unusually long time, markets have adjusted their implicit pricing for 2024 Federal Reserve rate cuts from the six to seven they expected at the end of last year to just two to three on the eve of this week’s policy meeting. This expectation is consistent with what the Fed has been flagging and is likely to be validated by the “dot plot” that will be published after Wednesday’s gathering.