While the world was discussing whether the crisis in the financial markets would grow further or not, two famous economists commented on the issue of interim interest rate cut. Speaking to Fox Business Television in two separate broadcasts, the economists also criticised the Fed.
Robert Prechter: They did not use the opportunity
Financial analyst and author Robert Prechter stated that he thinks the Fed will make a rate cut before 18 September and said:
“The Federal Reserve had a wonderful opportunity last Wednesday to lower their Fed funds rate by a quarter point; they didn’t take it, I think that was a big mistake. Now things are even more complicated. Look, if a rate cut comes, everyone thinks ‘the bull season will come’. From 2007 to 2009, the Fed cut interest rates from 6% to 0% and I remember that all values fell at that time. An interest rate cut shows that the economy is getting worse.”
Prechter said that at the moment, the safest harbour, albeit temporary, would be gold and US bonds.
El-Erian: They should wait until September
Mohammed El-Erian, chief economic advisor at Allianz, stated that an interim interest rate cut of 50 or 75 basis points would be a big mistake and said:
“If they make such a cut, they will make a big mistake. Things could get worse. It could turn into a self-feeding crisis. The Fed should definitely wait until September and cut interest rates in September. Look, I said the Fed should have cut rates in July, but they didn’t. They made a mistake. And only 25 basis points would have been enough. There should not have been more than this level anyway. Yes, they were late, but this does not mean that they should cut 75 basis points.”
“Some assets are too cheap”
El-Erian also stated that the current decline gives serious opportunities and said, ‘It does not mean that volatility will disappear, but we see that many assets give serious opportunities. They are very cheap… If you are holding cash on the sidelines and chasing opportunities, I would say look at what is happening in Big Tech…”