There has been a lot of talk about the impact of higher Treasury yields and the Federal Reserve. But what does it mean for the average American? Allianz Chief Economic Advisor Mohamed El-Erian says that for the average person, it means “your mortgage rate on a 30-year above 8%. It freezes the housing market even more. It means higher borrowing costs for both households and businesses, so it’s not good news for the economy.” El-Erian’s biggest concern “is the violency of the move.” “There’s a fear, and I hope it’s just a fear, that this could break something,” El-Erian tells Yahoo Finance Live. El-Erian argues that the Fed has been too backward-looking and data-dependent and as a result, “there isn’t clarity on where we’re gonna be when.” El-Erian sums it up saying, “this is a really hard time for the bond market and we need stability. We desperately need stability.”
El-Erian, who also serves as the President of Queens College, Cambridge, has harsh for the Fed. El-Erian compares the Fed’s data-dependent stance to driving a car on a curvy road while looking through the rear-view mirror. “When your tools… operate with lags it becomes a problem at points of inflections,” El-Erian says, arguing that right now, the U.S. economy is at two points of inflection: a technical point and an economic point. He argues he wants “greater vision” from the Fed, saying “this is the first Fed that hasn’t got a single strategic bone in it. It’s all data-dependent.” “If they’re truly data-dependent, we’re gonna get a hawkish message and the last thing… this market needs is hawkish message right now from the Fed,” El-Erian tells Yahoo Finance’s Julie Hyman.
El-Erian is a co-author of Permacrisis: A Plan to Fix a Fractured World. The authors argue, according to El-Erian, that there’s a “sense that we stumble from crisis to crisis.” El-Erian says that there are three reasons why that is happening: “the inability to generate durable, high, and inclusive growth that respects the planet,” repeated policy mistakes, and the lack of global policy coordination. Though it sounds negative, El-Erian is hopeful because he believes there are concrete things that can be done to address the concerns and break the cycle.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Key video moments
00:00:55 El-Erian on the state of the bond market
00:02:48 What El-Erian wants to hear from Fed Chair Jerome Powell
00:04:15 El-Erian explains Permacrisis
00:06:40 El-Erian discusses the importance of global leadership
00:08:42 El-Erian on what the Fed could end up breaking & why it has the wrong inflation target
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