A leading economist has issued a stark warning about the US economy, criticising the Federal Reserve for a “policy mistake” that could tip the country into recession.
Mohamed El-Erian, chief economic adviser at Allianz, said on Sunday he fears the economy could be in crisis following a grim unemployment report last week.
He blames the Federal Reserve for keeping its main interest rate at the highest level in two decades from 2022 in its quest to quell inflation.
Those increases are now hitting the economy hard, he said, suggesting the Fed should have cut rates sooner.
“I’m really worried that we could lose American economic exceptionalism because of a policy mistake,” he said. He told Bloomberg TV, as global markets continued to plummet.
Mohamed El-Erian, chief economic adviser at Allianz, said on Sunday that he fears for the first time in years that the economy may be heading for a recession.
Following the jobs report, which showed unemployment in July rose to its highest level Since October 2021, global markets have been in free fall amid fears that the US economy was faltering.
A decrease of almost 19 percent in Intel shares In the aftermarket, pessimism became more pronounced.
Economists at Goldman Sachs have since raised the probability of the US entering a recession over the next year from 15 to 25 percent, while analysts at JP Morgan put the chances of a recession at 50 percent.
To help save the economy, experts say the Federal Reserve must cut interest rates much faster than planned to avoid a major recession.
A rate cut would make it easier for American households and businesses to borrow money and boost the economy, but it could take months or a year for the full effects to filter in.
U.S. Federal Reserve Chairman Jerome Powell kept benchmark borrowing costs unchanged at a 23-year high at his latest meeting
US job growth fell far short of expectations in July and the unemployment rate hit its highest level in nearly three years
Goldman Sachs analysts said they expect the Fed to cut rates by 25 basis points, but noted that if the August jobs report is as weak as July’s, they could opt for a bigger cut.
However, JP Morgan analysts wrote in a memo that because “the Fed appears to be materially behind schedule, we expect a 50 (basis point) cut at the September meeting, followed by another 50 (basis point) cut in November.”
However, the Federal Reserve left benchmark borrowing costs unchanged at their highest level in 23 years at its latest meeting last week.
The market is now “wondering whether the Fed was too late in the monetary policy transition,” said Quincy Krosby, chief global strategist at LPL Financial. CNBC.
Global stocks plunged after Friday’s jobs report
When markets opened in Asia and Australia on Monday morning, NASDAQ futures fell 2.27 percent.
When markets opened in Asia and Australia early Monday, Nasdaq futures fell 2.27 percent, while S&P 500 futures fell 1.41 percent.
The situation was not much better internationally, with EUROSTOXX 50 futures falling 0.6 percent and Japan’s Nikkei losing a staggering 5.5 percent to hit a seven-month low, marking its biggest three-session loss since 2011.
The losses continued a trend that began on Friday, when Japan’s market retreated to levels it traded at in January before rising to a record high of 42,000 last month.
Elsewhere in Asia on Friday, Hong Kong’s Hang Seng fell 2.1 percent to 16,945.51, while the Shanghai Composite Index saw a more modest loss of 0.9 percent to 2,905.34.
Chinese stocks have extended their losses as investors have registered their disappointment with the The latest efforts of the government to stimulate growth through various piecemeal measures, rather than the expected broader stimulus infusions.
Seoul’s Kospi fell 3.7 percent to 2,676.19 points and Taiwan’s Taiex sank 4.4 percent. Both markets are typically hit hard by weak technology stocks.
Many investors are now wondering whether the Fed waited too long to cut rates.
Meanwhile, Australia’s S&P/ASX fell 2.1 percent to 7,943.20 points and India’s Sensex fell 1.1 percent. Bangkok’s SET fell 0.7 percent.
Japanese stocks also suffered after the central bank raised its reference interest rate On Wednesday, from 0.1 percent to 0.25 percent.
That pushed up the value of the Japanese yen against the U.S. dollar, potentially hurting overseas profits for major manufacturers and dampening a tourism boom.
Investors now believe other major central banks will follow the Fed’s lead and ease rates more aggressively, with the European Central Bank expected to cut rates by 67 basis points by Christmas.