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The odds of a soft landing are 'meager' and recent rallies in the stock market haven't been supported by fundamentals, Mohamed El-Erian says
The odds of a soft landing of the economy at this point are "meager," and recent rallies in the stock market haven't been supported by fundamentals, according to top economist Mohamed El-Erian.
"Is there some possibility of a soft-landing? Yes, but it is meager," the chief economic adviser of Allianz said in an interview with CNBC on Monday. "And for a soft-landing to have happened, the Fed should have started moving a year ago."
El-Erian has been a loud critic of the Federal Reserve's delayed response in fighting inflation, warning the central bank's belated rate hikes have raised the odds of a "damaging recession." In his view, a downturn is still avoidableāand wouldn't be as bad as 2008ābut the pace of interest rate hikes required to bring down sky-high inflation is making risks "uncomfortably high" that the Fed will bring the economy to a screeching halt, he said.
Yet, that outlook doesn't seem to be reflected in the stock market, which rallied last week after Fed officials began to soften their tone on future policy moves. The rally came alongside otherwise dismal news from US companies that reported earnings last week, with large tech companies mostly missing estimates and sparking fears of broad headwinds to future profitability.
But El-Erian believes investors are wrong to hope for a pivot at this point, and the recent rallies have only been spurred by prospects of greater liquidity rather than improving economic data, El-Erian said. Prices clocked in well-above the Fed's 2% inflation target in September, and core inflation still showed signs of accelerating, which means the Fed could risk stagflation if they let up on monetary tightening now, he said.
"This is a market that repeatedly falls in love with liquidity and therefore rallies. But the sustainability of those rallies is only there if you get fundamentals improving," El-Erian added. "So far, fundamentals haven't validated it, and that's why people are worried we're going to test the lows yet again."
El-Erian urged the central bank to keep up its tightening regime to avoid inflation expectations becoming entrenched.
"He's in a bit a bind because on the one hand, I think, he's inclined to validate the market expectation that we are having a slowdown in the rate hikes," El-Erian said, "On the other hand, if he does that and financial conditions continue to loosen, then that causes a problem on the inflation front."
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Chicago PMI in the United States averaged 54.88 points from 1967 until 2022, reaching an all time high of 81 points in November of 1973 and a record low of 20.70 points in June of 1980. This page provides the latest reported value for - United States Chicago PMI - plus previous releases, historical high and low, short-term forecast and long-term prediction, economic calendar, survey consensus and news. United States Chicago PMI - data, historical chart, forecasts and calendar of releases - was last updated on October of 2022.
The Chicago PMI in the United States decreased to 45.20 points in October from 45.70 points in September of 2022. It is the lowest reading since June of 2020, below market forecasts of 47. source: Institute for Supply Management
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