El-Erian Thinks Fed Officials Are Coordinating To Correct Markets' Grasp Of Powell's Comments

Allianz chief economic adviser and noted economist Mohamed El-Erian has said the tone of Federal Reserve officials in their recent commentary indicates there may be a coordinated attempt by central bankers to ensure markets' understanding of Chair Jerome Powell's statements.

Federal Reserve Chair Jerome Powell had acknowledged during a discussion at The Economic Club of Washington, D.C. on Tuesday that the disinflationary process had begun but added that the central bank would have to raise rates more than what is priced-in if the labor market remains strong and inflation remains high.

U.S. equity markets witnessed a see-saw movement during the day as investors and traders held on to every word spoken by the Fed Chair. Major indices however ended the session with decent gains.

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Federal Reserve Governor Christopher Waller said in remarks to an Arkansas State University conference that while wage growth has slowed, the decline is not enough and that "the Fed will need to keep a tight stance of monetary policy for some time,” a Reuters report said.

Minneapolis Fed leader Neel Kashkari said he still believes the federal funds rate will need to rise as high as 5.4% or even further if the data called for it, Reuters reported.

Coordinated Attempt: El-Erian noted that Waller's statement will be read by some not just as pushing back against the markets' path of future rates but also against Chair Powell's remarks on financial conditions and inflation dynamics.

"The tone/content of the other Fed officials who spoke today were broadly in line with Governor Waller's. This supports the view that there may be a coordinated Fed attempt to correct the markets' understanding of Chair Powell's comments and tone from last Wednesday and yesterday," El-Erian tweeted.

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