The Federal Reserve's policy mistakes may cause the United States to lose its economic exceptionalism!
The Federal Reserve's policy mistakes could lead to the United States losing its economic exceptionalism. Market concerns about growth fears and the Fed's lagging rate cuts are escalating. While some economists believe that a recession will not come immediately and expect the U.S. economy to pick up speed again, Allianz's chief economic advisor Adrian is worried that the exceptional status of the U.S. economy may be lost due to policy mistakes. In recent years, the U.S. economy has shown strong growth and financial market performance, attracting investors' funds. However, the underestimated lagging effects of the Fed's rate hikes on the economy
In recent years, although warnings of a US economic recession have been on and off, they have not truly materialized. However, Allianz's Chief Economic Advisor Mohamed El-Erian believes this time is different.
In an interview with Bloomberg TV last Friday, he said that the disappointing July employment report has sparked soaring concerns about a recession, with the market now "screaming" about two things: growth fears and Fed policy mistakes.
El-Erian stated that this reflects the market's realization that the potential Fed rate cut may already be lagging behind. He said, "This is the first time I've felt growth fears." Previously, he had written that if the rate cut is delayed until after September, the Fed's hopes for a soft landing may be dashed.
The Fed's tightening cycle since 2022 is the most aggressive in 40 years. Current interest rates are at their highest level since 2001. With rising rates, Wall Street's original consensus was that a recession would arrive in 2023. But the US economy continues to grow, and the consensus has shifted towards a soft landing.
El-Erian previously believed there was no need to worry about a recession, but people underestimated the lagging effects of Fed rate hikes, which are now having a greater impact on the economy.
He said, " I am really worried that we may lose America's exceptional economic status due to policy mistakes."
In recent years, this exceptional economic status of the US has been reflected in its outstanding performance in economic growth and financial markets, contrasting with other top economies. While other economies are striving to recover growth, investors are withdrawing capital and moving it to the US.
Meanwhile, other economists believe that the market's reaction is excessive and that a recession will not come immediately.
Last Friday, Capital Economics stated in a report that the likelihood of a recession is low, and after experiencing weakness in the second half of this year, US economic growth may even accelerate again.
Senior market economist Diana Iovanel wrote, "We do not believe that risk sentiment will deteriorate further. Overall, we doubt whether the economy can prevent another AI-driven bubble from inflating."
Previously, El-Erian stated that the main support for US stocks is confidence in tech stocks, the economy, and the Fed, and US stock investors may not be able to rely on the Fed for rescue.