Delaying interest rate reduction endangers US economy: El-Erian

Renowned economist Mohamed El-Erian argues that the Federal Reserve's insistence on delaying the decision to lower interest rates could endanger the US economy.

He contends that such a delay might ultimately trigger a severe cycle of rate reductions, thereby increasing the risks of an economic downturn.

In his article for the Financial Times, El-Erian drew parallels between the current delay in interest rate cuts and the situation in 2021, when the Fed initially refrained from raising rates but later had to implement sharp tightening measures.

Emphasizing the urgency of timely action, the Wharton School professor underscored the crucial importance of the initial interest rate cut to mitigate recession risks.

He warned that if the Fed is compelled to embark on a significant cycle of rate cuts now due to the delayed action and escalating economic and financial vulnerabilities, it could result in more extensive cuts than necessary over the long term.