El-Erian: December Jobs Report 'Puzzling', Won't Keep Fed On The Sideline

The December Payroll data came better than expected today, following which the markets opened lower fearing an imminent rate hike from the Federal Reserve. The unemployment rate declined from 5.8% to 5.6% while 250,000 new jobs were created, which were better than analysts’ expectations.

El-Erian, Chief Economic Adviser at Allianz, was on Bloomberg to discuss what impact the December jobs report will create on the Federal Reserve.

“There is a lot going on today, oil again isn’t finding enough of a base, I think that is having an influence,” El-Erian said. “I think the reports points to a puzzling issue on wages. So, it’s not that clear that this is something that will keep the Fed on the sideline. So, I understand that the market is hesitant at this stage because this wage issue is a real puzzle.”

My own point of view, it is not going to keep the Fed on the sideline. I think the Fed is going to look at the holistic improvement in the economy and it’s going to take that as a skew to start hiking rate, very gradually and with a destination point, with a terminal point well below historical averages.

El-Erian feels that the Fed is going to start hiking rates sometime in the summer of this year.

When asked about whether Fed will start looking at other barometers than just inflation and wage pressure before hiking rates, El-Erian replied, “Well, I think that it’s looking at many. It also has to keep an eye on financial stability. I think the only thing that derails the Fed is if we get a catastrophe outside the US.”