As Wholesale Inflation Cools In August, El-Erian Says The Question To Fed Should Be 'Why Not 50?’: Report

Mohamed El-Erian, Chief Economic Advisor at Allianz, reportedly said on Wednesday that the question to be asked of the Federal Reserve is, why should it not cut interest rates by 50 basis points in September, given that wholesale inflation in August came in cooler than expected.

In an interview with CNBC, El-Erian was reacting to the PPI report for August that showed wholesale inflation declined by 0.1%, while a Dow Jones estimate pointed to an increase of 0.3%, according to MarketWatch.

El-Erian said in the interview that between exporters, importers, and consumers, the consumers are carrying the least of the burden of the increase in costs. “They [companies] are going product by product, going through the elasticity, what they think the consumers can absorb in terms of price increase without destroying demand, and they’re finding out that they cannot pass through as much of the price increase as they want,” he added.

El-Erian said that consumers cannot absorb the price shocks now, so either the exporters or the importers will have to take a hit on their profit margins.

“This number now, if the Fed is truly data dependent, the question should be, ‘Why not 50?’” El-Erian said in the interview, referring to the chances of the Fed’s interest rate decision at the upcoming September meeting.

According to the CME FedWatch tool, there is a 90% probability that the Fed will cut interest rates by 25 basis points in September.

Meanwhile, U.S. equities gained in Wednesday’s midday trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.48%, while the Invesco QQQ Trust (QQQ) rose 0.38%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bullish’ territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was up 0.24% at the time of writing.

Also See: US Mortgage Rates Decline To 11-Month Low As Treasury Yields Slip: Report

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