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Allianz's El-Erian warns of higher Treasury yields due to China, geopolitical tensions

Published 10/20/2023, 02:14 AM
Updated 10/20/2023, 02:14 AM
© Reuters.

Mohamed El-Erian, Allianz (ETR:ALVG) Chief Economic Advisor, warned of potential economic consequences on Thursday due to China reducing its holdings of U.S. treasuries by $21 billion in August and ongoing geopolitical tensions. He predicted a rise in 30-year mortgage rates above 8%, which could freeze the housing market and increase borrowing costs for households and businesses, adversely impacting the economy.

El-Erian criticized the Federal Reserve's data-dependent, backward-looking stance and its quantitative tightening policy. According to him, indicators such as jobless claims below 200,000, inflation outcomes above the target, and Atlanta's GDP for the third quarter in the 5% range are evidence of this stance.

He suggested that the U.S. economy is at two points of inflection: a technical point and an economic point. Concerns were also raised about the equilibrium interest rate and what El-Erian perceives as the Fed's incorrect inflation target. He fears that if these issues are not addressed appropriately, the Fed could inadvertently cause further economic disruptions.

In his co-authored book "Permacrisis: A Plan to Fix a Fractured World," El-Erian argues that our current global predicament is a result of our inability to generate durable, high, and inclusive growth that respects the planet. This situation is further exacerbated by repeated policy mistakes, lack of global policy coordination, and a deficit in global leadership.

Despite these concerns, El-Erian remains hopeful about potential solutions to these challenges. He believes there are concrete steps that can be taken to address these issues and break the cycle of stumbling from crisis to crisis.

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