Allianz\u00a0chief economic advisor Mohamed El-Erian\u00a0said the Federal Reserve is behind the curve in lowering rates now that the economy is slowing, just as it was tardy in hiking rates when inflation was spiking.<\/p>\n
The latest jobs report<\/a> revealed the U.S. economy added just 22,000 jobs in August with revisions to prior months showing June actually saw a decline. Meanwhile, the unemployment rate edged up to a four-year high of 4.3%.<\/p>\n \u201cI think they have gotten it wrong,\u201d he told CNBC<\/a> on Friday. \u201cI think once again they\u2019re late. They will cut in September,\u00a0and I suspect there will also be discussion should they cut by 25 or 50\u201d basis points.<\/p>\n That would mark another policy mistake in recent years. As the economy began to recover from the COVID-19 pandemic, prices began surging, but the Fed was slow to hike rates. When it finally started in 2022, it launched the most aggressive tightening cycle in four decades, though the economy didn\u2019t tip into a recession as was widely expected.<\/p>\n El-Erian\u2019s remarks echo President Donald Trump\u2019s criticism of the central bank. Trump has regularly insulted Chairman Jerome Powell, and even toyed with firing him earlier this year. Meanwhile, he has moved to fire Fed Governor Lisa Cook, who is fighting her dismissal in court.<\/p>\n The Fed should\u2019ve cut rates in July, but Powell\u2019s view of the job market was too narrow and ignored the weakness that was building under the surface, El-Erian said. <\/p>\n The risk with waiting to provide support to a weakening labor market is that it can deteriorate in a \u201cnonlinear\u201d fashion, meaning that job losses can quickly accelerate, he explained.<\/p>\n For his part, Powell has pointed to the unemployment rate, which has been relatively steady for more than year, noting that the supply of workers in the labor market has dropped alongside a decline in demand. <\/p>\n Trump\u2019s immigration crackdown has sent more than 1 million workers out of the labor force this year. As a result, the breakeven level of job gains that are needed to keep unemployment flat is lower than it used to be.<\/p>\n At the same time, Fed\u2019s dual mandate of price stability and maximum employment is forcing policymakers to balance the risks of further stoking inflation, which has been climbing as Trump\u2019s tariffs ripple through the supply chain.<\/p>\n Tariffs are also weighing on the job market. In a note on Saturday<\/a>, Torsten Sl\u00f8k, chief economist at\u00a0Apollo Global Management<\/a>, observed that job growth in tariff-impacted sectors is negative, while sectors not directly impacted by tariffs\u00a0are declining but still in positive territory.<\/p>\n There\u2019s still time for the Fed to correct its mistake, and perhaps cut rates more aggressively, El Erian said. But the risks to the economy are elevated as lower-income households\u00a0have seen their financial security decline.<\/p>\n \u201cCould they play catch-up? Yes, they could. Hopefully they will, but it\u2019s a more risky operation than a lot of people expect it to be,\u201d he warned.<\/p>\n It\u2019s also not certain the Fed can actually save the economy. Moody\u2019s Analytics chief economist Mark Zandi previously warned that with inflation still climbing, the central bank will have a hard time coming to the rescue<\/a> with a steep easing cycle.<\/p>\n Similarly, JPMorgan Asset Management chief global strategist David Kelly said rate cuts will reduce interest income for retirees and encourage businesses to hold off on borrowing money and wait for rates to get even lower. <\/p>\n