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El-Erian: Rate Hike Part Of 'Loosest Tightening' In Modern History

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Amid market reaction to the FOMC's decision to raise interest rates, Mohamed El-Erian said the announcement is really about one thing.

"The Fed is going out of its way to signal a gradual policy approach," El-Erian said in an email to Benzinga.

"It is looking to reassure markets that, while it has embarked on an interest rate hiking cycle, it will not be your traditional one."

El-Erian calls the plan the "loosest tightening in the modern history of the central bank."

This Time Is Different

This is the first rate hike to be initiated after a period of such little Fed funds rate volatility. The graph below shows the lack of present-day FFR volatility compared to pre-2008 levels.


Other Things To Know From The Announcement

The FOMC's latest dot plot shows the average rate for 2016 year-end is 1.4 percent, while 2017 estimates fell slightly to between 2.375 percent and 2.625 percent.

December's Fed statement also shows alterations from October, noting long-term inflation expectations have "edged down." The committee previously said expectations were "stable."

Jason Shubnell and Jake Mann contributed to this report.

Posted-In: Mohamed El-ErianNews Events Top Stories Economics Federal Reserve Exclusives Markets Best of Benzinga


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