Shannon Stapleton/Reuters
- The Fed won't raise interest rates at its next meeting, but could leave the door open for future increases, Mohamed El-Erian said.
- A stronger-than-expected US economy and rising oil prices are key reasons why further hikes could be on the table.
- "There's no reason to fall into recession unless there's another policy mistake," El-Erian said.
The Federal Reserve won't lift interest rates at its next policy meeting, but will keep the door open for future increases if necessary, top economist Mohamed El-Erian said.
"Based on the economic data, and based on the fact that the Fed is highly data dependent, they will not raise rates this month," the president of Queen's College, Cambridge, said in a CNBC interview.
"But what they will do, is keep the door open for at least one more rate hike in the future," he added.
There are two reasons why, according to him.
"One is, the economy is proving stronger than they had anticipated," and the second is "we're seeing major moves in oil, iron ore, certain food items. They are supply-driven and that's going to go into headline inflation and [...] could even spillover into broader issues," the chief economic adviser at Allianz said.
The Fed is due to release its next monetary policy decision on September 19. Officials have already hinted more rate hikes could be on the table as the central bank needs more convincing on whether it's won its war against inflation.
Over the past six quarters, the Fed has hiked interest rates from near-zero levels to upward of 5% in a bid to cool historically high inflation. It has succeeded in lowering the annual pace of consumer-price increases to around 3%, from last year's highs above 9%, but it still remains above the Fed's 2% target.
Further more, higher oil prices are also adding to the Fed's inflation problem, El-Erian noted. Crude oil prices have creeped back up toward $90 a barrel – the highest level in 2023 – as global producers, including Russia and Saudi Arabia, continue to extend output cuts in order to maintain price stability.
"There's no reason to fall into recession unless there's another policy mistake," El-Erian said.