El-Erian: 50 bps rate cut seen as response to Fed’s ‘inaction’ in July

Mohamed El-Erian, president of Queen's College at the University of Cambridge

Mohamed El-Erian, president of Queen's College at the University of Cambridge, commented on the Federal Reserve's decision to cut interest rates by 50 basis points (bps), noting that this move is a response to the delay in implementing monetary policy easing.

In a post on X, economist Mohamed El-Erian noted that Fed Chairman Jerome Powell had to address the contradiction of starting a rate-cutting cycle with a 50-bps cut while assessing the economy as being in good shape.

El-Erian added that it was understandable that Powell might not want to acknowledge that the 0.5% rate cut was a compensation for not lowering rates in July.

In another post, he summarized Powell's remarks, highlighting that the Fed is reassessing its monetary policy amid growing confidence in maintaining a strong labor market.

He also pointed out Powell’s statement that a 50-bps cut does not indicate a new pace for the Fed, emphasizing that monetary policy does not follow a predetermined path.