Mohamed El-Erian: Fed should be cutting this month, but I don't expect them to

Inflation and Tariffs - Tariffs haven't materially increased inflation yet, but the situation is still evolving [2] - The impact of tariffs on pricing power and margins remains uncertain as companies assess demand elasticity [14][15] - The US has collected $266 billion in tariffs, surprisingly without sparking inflation [12] Monetary Policy and Economic Outlook - The Fed is waiting for clearer signs of labor market weakening before making further moves, influenced by political pressure [3] - A stable inflation rate of 25% to 3% and growth around 15% are considered acceptable [4] - Fiscal stimulus is driving demand, but supply-side productivity enhancements are crucial [5] Productivity and Innovation - There's significant potential for productivity growth driven by AI, life sciences, and robotics [6] - Increased productivity could raise the economy's speed limit [7] Risks and Challenges - Potential threats include the bond market's ability to absorb new issuance, the ultimate tariff regime, and Fed policy [7][8] - A too-tight Fed policy could negatively impact the economy [8] Bond Market and Interest Rates - The next big move for the 10-year Treasury yield is expected to be higher [9] - Even with Fed cuts, the yield curve is expected to steepen due to fiscal policy [10] - A 10-year Treasury yield between 45% and 5% and a 30-year yield above 5% are anticipated [10] Global Considerations - The US is less sensitive to interest rate moves compared to Japan, where rising rates could force institutional investors to sell foreign bond holdings [11][12]