The Fed will be making a big mistake if it skips a rate hike this week, top economist Mohamed El-Erian warns

Mohamed El-Erian suggested that the Federal Reserve may be making an error in their policies. He warned that not increasing interest rates could be a bad choice and is one of three options available to the central bank. Traders predict that the Fed may not increase borrowing rates on Wednesday but will maybe do so in July.

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Mohamed El-Erian has warned investors that they should be prepared for the possibility of the Federal Reserve committing an error at the conclusion of their June meeting on Wednesday.

An esteemed economist cautioned that out of the three choices at the central bank's disposal, not increasing the interest rate might be the most unfavorable one. The op-ed, which was published by the Financial Times on Monday, delivered this warning.

A majority of traders predict that the Federal Reserve will maintain their current borrowing rates on Wednesday and subsequently increase them by 25 basis points in July, as indicated by the Fedwatch tool provided by CME Group.

This method, which has support from influential decision-makers like Christopher Waller, would permit the central bank to analyze additional economic information for another six weeks before determining whether to continue its efforts to combat inflation or put them on hold.

However, El-Erian, who was once a co-CIO at PIMCO, criticized the notion of skipping a meeting. He cautioned that there is a high probability that the Fed would not gain much insight into the effectiveness of its strategies to control the rapidly increasing prices during the period leading up to its upcoming meeting scheduled to commence on July 25th.

According to him, obtaining more data for an extra month is not likely to majorly improve the Federal Reserve's comprehension of the impact of a policy mechanism that functions irregularly.

El-Erian stated that the latest information suggests that the central bank should increase their interest rates. The bank has frequently emphasized that they base their decisions on gathered data. One of the pieces of information that El-Erian may be citing is the job report from May, which indicated that the American workforce is still flourishing despite the bank's attempts to restrain the economy.

Instead of completely avoiding an increase in interest rates, El-Erian suggests that the Fed should opt for one of two options: either go ahead with raising borrowing costs once more or indicate that they are temporarily halting their efforts to tighten monetary policies and switch to a different range of inflation targets that sit within the 3% to 4% range.

Find out more: David Rosenberg, a highly respected economist, has ridiculed suggestions for the Federal Reserve to raise interest rates once more due to the recent influx of job openings.