Mohamed El Elian, Chief Economic Advisor for Allianz and president of Queen's College at Cambridge University, said on CNBC's “Scokebox” that investors should expect smaller rate cuts from the Fed this year.
According to El Elian, the market may see some easing in the short term in light of global economic uncertainty and geopolitical development, but the roads are not smooth and very bumpy.
Noting that economic activity will increase over the next 90 days thanks to a trade ceasefire between the US and China, Ellian said the situation is temporary and a lot of uncertainty still continues. Regarding his expectation that the Fed would cut interest rates, he made the following evaluation: “The likelihood of interest rate reductions has declined and has been postponed within time.”
El Elian said that despite the decline in what economists call “soft data,” “hard data” is strong and creates mixed signals. He predicted that the US economy would slow somewhat and inflation would increase, but a sudden jump in unemployment rates would not be expected. He said layoffs could be limited as businesses avoid making key decisions.
The program also discussed the impact of the trade war on reshaped supply chains. El Elian said that companies are no longer in the “China + 1” model but are acting on a “China + 2 or 3” strategy, which could encourage investment in the US, but for this to happen, the US administration needs to clarify its trade policy.
Finally, El Elian said in regards to the global economic outlook, “We are moving between two possibilities: one is economic fragmentation, and the other is stronger us within a more equitable trading system. Currently, the second scenario is a little more likely, but it's still a 50/50 situation.”
*This is not investment advice.
