El-Erian: Strong Jobs Number Signals Two More Rate Hikes

Mohamed El-Erian was a guest on Friday's PreMarket Prep, where he gave his reaction to the jobs number and what that means for a rate hike.

El-Erian is the chief economic advisor for Allianz and the chair of President Obama's Global Development Council. He's also a best-selling author with a new book, "The Only Game In Town" scheduled for release January 26th.

Tune in to PreMarket Prep live Monday-Friday at 8 a.m. ET here for trading ideas and analysis from Joel Elconin and Dennis Dick. 

Economist Mohamed El-Erian called Friday's umemployment number "very strong," saying it will likely be good enough for a federal funds rate increase in March. Good when it comes to wage increases, and that's what the country needs."

How Many Hikes In 2016?

Based on how he sees the economy right now, El-Erian does not think we will see more than two increases in the federal funds rate in 2016. 

The Fed will want to establish they're in a hiking cycle, but will not want to go too far. Victory for the fed is to start normalizing, but not to break anything."

A New Paradigm

The biggest thing, he said, was what he called a "new volatility paradigm," with central banks playing a more passive role. 

"I do think the critical thing about the market today is we’re entering a new volatility paradigm. We're exiting the world in which every time there was a hickup somewhere in the world, a central bank would come in and say don't worry, I got your back covered.’ 

"There was no reason why we should sell off the way we sold off in relation to the China news, except that we've been in a regime of repressed volatility and we're exiting," he said. "And markets have to price in greater volatility."

He added that this adjustment is going to happen in a non-linear fashion, but investors need to realize that the last few years have been abnormal.