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

El-Erian: Strong Jobs Number Signals Two More Rate Hikes
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  • Mohamed El-Erian was a guest on Friday's edition of#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 every Monday-Friday from 8-9:30 a.m. ET herefor trading ideas and analysis fromJoel ElconinandDennis 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.

"This is a good jobs report when it comes jobs creation," he said. "It's less good when it comes to wage increases, and that's what the country needs, but it's a good report that shows the U.S. economy continues to heal."

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. 

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