Allianz' Mohamed El-Erian: There was no reason for Fed to hike at this meeting

Summary

The video covers the Fed meeting where three dissenters wanted a rate hike, while the majority paused. Mohamed El-Erian argues there was no reason to hike now, but rates need to rise anyway due to government deficits and heavy tech bond issuance, with real rates driving the move. The market is adjusting to the Fed's less accommodative stance.

• Three Fed dissenters argued for a quarter-point hike to tame persistent inflation.
• The majority voted to pause, but Chair Powell's remarks were more hawkish than many initially thought.
• Mohamed El-Erian says the data did not justify a hike at this meeting.
• El-Erian uses a loanable-funds framework to conclude rates must go higher because of the government deficit and large tech bond issuance this year.
• He notes that the rise in yields is driven by real rates, not break-evens.
• El-Erian welcomes the Fed's willingness to reduce market co-dependency, even though it makes markets nervous.