US Fed on track to rate hike downshift: El-Erian

Chief Economic Advisor at Allianz Mohamed El-Erian

Chief Economic Advisor at Allianz, Mohamed El-Erian, said the Federal Reserve will cut interest rate hikes in the next meeting, stressing that this will not be the best decision.

“I’d be shocked if Fed did anything other than 25 basis point hike,” El-Erian told CNBC.

The Fed will likely meet market expectations by downshifting its rate hikes to 25 basis points (bps) in the next meeting scheduled for Jan. 31-Feb. 1. Interest rates were raised by 50 bps in December and by 75 bps in the previous four meeting.

The Fed should raise interest by 50 bps for many reasons, such as risk management on the monetary policy policy side, sticky inflation and the central bank's credibility.

Financial conditions have loosened significantly, El-Erian added.

The US central bank hiked rates seven times in 2022 from almost zero in March to 4.25% and 4.5% now.