Allianz's El-Erian: 'Amazing' how muted market reaction has been to Fed independence attacks

Market Reaction & Fed Independence - The market reaction to attacks on Fed independence has been muted, with a steepening yield curve [1][2] - The market has decoupled sovereign issues (tariffs, Fed independence, fiscal policy) from corporate performance, focusing on productivity enhancements [4][5] - The "buy the dip" mentality, conditioned over time, contributes to market resilience [7][8][9] Economic Outlook - The US economy is slowing, but not dramatically [10][12] - The bond market's shift to absolute space (demanding higher compensation) and tariffs posing a bigger threat to global growth are major risks [11] - The industry anticipates the Fed will cut rates and inflation will remain persistently above 2% [12] - Companies are prioritizing resilience over efficiency, contributing to inflationary pressures [13] Policy & Global Trade - The market is taking a slower ramp-up approach to policy changes, like tariffs, compared to immediate announcements [7] - Secondary sanctions on countries trading with Russia (e.g., India at 50% tariffs) raise questions about potential implications for China [8] - The industry believes the Fed is unlikely to change its 2% inflation target, despite potentially living with higher inflation [13][14]