UPDATE 1-Allianz's El-Erian says Fed will likely hike rates in September

Thu Apr 9, 2015 2:42pm EDT
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By Solarina Ho

TORONTO, April 9 (Reuters) - The U.S. Federal Reserve will likely hike interest rates in September, Allianz chief economic adviser Mohamed El-Erian said on Thursday.

"Yes, the Fed will be the first to move. Notwithstanding last Friday's employment report, I think they will start hiking rates in September," El-Erian told a financial audience in Toronto after a presentation about the economic and market impact of geopolitical threats.

Markets have been preparing for the Fed to boost rates this year, possibly as early as June, but recent lackluster economic data, including a dismal March employment report last week, has tempered rate hike expectations. Many market participants now expect a rate rise in the second half of 2015.

The U.S. central bank's plan to raise rates contrasts with the policies of other economies around the world. More than two dozen central banks and monetary authorities have cut rates this year to boost growth and bolster inflation.

El-Erian, noting his preferred asset is currently cash, said the U.S. rate hike will likely come with important caveats, including a forward policy guidance that will indicate monetary tightening will be gradual.

"They're going to tell us the path is going to be ... very shallow, it's going to be a very long journey, very gradual," he said.

El-Erian also said that while central banks may be able to control microeconomic outcomes, they do not have the tools to control the macroeconomic outcome. (Reporting by Solarina Ho; Editing by Bernadette Baum)