Layoffs have started so regular government shutdown theme is in question: Mohamed El-Erian

Core Viewpoint - The recent selloff in equities and other markets is attributed to two significant news items that challenge the prevailing belief in stable growth and inflation, as well as the Federal Reserve's continued rate cuts [2][4]. Market Reactions - The market's assumptions about a stable economic environment are being questioned due to the announcement of increased tariffs and the onset of layoffs, which contradict the expectation of a smooth recovery post-shutdown [3][4][5]. Economic Conditions - Despite the current challenges, the economy is still considered sound, with AI playing a crucial role in driving growth through both direct investments and indirect effects on consumer wealth [7][8]. - The consumption side of the economy, particularly among lower-income households, remains uncertain, which could impact overall economic stability [8]. Federal Reserve Outlook - There is a belief that the Federal Reserve will continue to cut rates, although the assumptions regarding the soundness of growth may not be entirely grounded in reality [6][2]. Leadership Considerations - The potential successors for the Federal Reserve Chair are viewed positively, with all candidates possessing significant economic training and experience, indicating a strong leadership pool [9][10].