El-Erian Forecasts Fed September Rate Cut, Warns of Surprise
Economist Mohamed El-Erian said the Fed, had it seen revised weak July job data, would have cut interest rates already. He now sees a near-certain 25bp Fed interest rate cut in September and a possible 50bp move, recalling last year’s unexpected jumbo cut. El-Erian highlighted deteriorating consumer spending among low-income households and corporate balance sheet strains, signalling weaker US growth. He criticized Trump’s removal of the BLS head for undermining data integrity and urged Fed Chair Powell to resign to protect the Federal Reserve’s independence. Potential successors like Kevin Hassett and Kevin Warsh may offer more institutional stability. A Fed interest rate cut could boost liquidity and risk assets, including cryptocurrencies.
Bullish
El-Erian’s firm forecast of a September Fed interest rate cut, potentially larger than 25bp, suggests increased liquidity ahead. Historically, Fed rate cuts have sparked risk-on rallies in equities and cryptocurrencies, as seen after the 2019 cuts. A surprise or jumbo cut would likely fuel short-term bullish momentum in crypto markets by lowering borrowing costs and driving investors toward higher-yielding assets. In the long term, sustained lower rates could underpin steady growth in risk assets, although macro uncertainties—such as data integrity concerns and political pressures—may introduce volatility. Overall, traders can anticipate a favourable backdrop for crypto if rate-cut expectations materialize.