March 30, 2023

  • Mohamed El-Erian sees the Fed’s upcoming rate hike as part of a new policy paradigm.
  • Top economists predict that interest rates will rise higher and faster, and for a long time.
  • El-Erian sounded the alarm about Russia’s deployment of more troops and the threat of nuclear war.

Mohamed El-Erian warned investors to expect interest rates to be higher, faster and longer. He warned that Russia’s latest escalation in its war with Ukraine was further clouding the market’s outlook.

“A rise of perhaps 75 bp, and the forecasts and signals that come with it, will be part of the HFL policy paradigm in the developed world – rates higher, faster and for longer,” he said. Tweet on Wednesday. “Related complications are just now being highlighted by Russia news.”

Allianz’s chief economic adviser was citing the Federal Reserve potentially raising its benchmark rate by 75 basis points to between 3% and 3.25% later on Wednesday. The US central bank is also expected to increase further as it seeks to curb inflation, which spiked to a 40-year high In June.

Meanwhile, Russian President Vladimir Putin on Wednesday ordered the deployment of nearly 300,000 troops to support his invasion of Ukraine and signaled that he would respond with nuclear force to any threat to his country’s territory.

El-Erian has repeatedly underscored the difficulty of conquering inflation without devastating consequences. On Saturday, PIMCO’s former CEO and co-chief investor raised the prospect of global “stagflation” — a painful combination of stagnant economic growth, rising unemployment and stubborn inflation.

The economist also warned earlier in September that Europe’s energy crisis, China’s ongoing lockdown and high US inflation and falling consumer demand are making global growth more fragile. As a result, central banks are more likely to steer their economies into recession, he said.

El-Erian’s latest tweet suggests he sees continued higher rates, and a greater risk of the Fed and its peers fighting inflation, eroding economic growth, and massive job losses.

Read more: Morgan Stanley: These 23 stocks pay high, stable, and growing dividends — and are poised to outperform in a high-inflation environment

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