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El-Erian: Market Now Is Not Like 1998 Or 2008

Mohamed El-Erian, former CEO of Pimco and columnist for Bloomberg View, spoke with Bloomberg TV's Olivia Sterns and Alix Steel about the selloff in stocks and the implications for Fed policy.

When asked whether we are looking at another 1998, El-Erian said: "I'm not a buyer that this is 1998. Nor am I am a buyer that that's 2008. And in 1998 you had a lot of fixed exchange rates. Now you have fewer of those. And 2008 was about the payments and settlement system. This is not about the payments and settlement system. This is an old-fashioned repricing of two things."

He added: "I'm not a buyer that this is the crisis of all crises. Yes, this is a very unpleasant repricing, very unpleasant. And it's going to go quite deep, but it's not going to derail the economy in a major way."

El-Erian said he believes a December rate hike is still possible: "I think December is still on the table, and for the following reason. The economy will benefit from lower commodity prices, particularly oi. And the economy will benefit from lower interest rates. And that's going to fuel some underlying strength that the economy does have. The big question is how much damage are we doing to the wealth effect, and to what extent will external demand collapse? We cannot answer that question yet. So I would think December is still a possibility, but September is unlikely to happen."

El-Erian: Market Now Is Not Like 1998 or 2008

El-Erian: Why a December Rate Hike is Still on the Table

Bloomberg Television is providing special live coverage on the markets, adding to its programming a one-hour edition of "What'd You Miss” with Joe Weisenthal and Alix Steel from 4:00-5:00pm ET and a live Markets Day special from 6:00-7:00pm ET with Matt Miller. Preempting Charlie Rose at 7:00pm ET will be Bloomberg TV live anchored from Hong Kong, with special coverage dedicated to the global financial markets.

  • 4:00 - 5:00pm ET: What'd You Miss?: Turmoil in the Markets with &
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Watch on Bloomberg Television or on free livestream here: www.bloomberg.com/live

OLIVIA STERNS: All right. For more on whether this market turbulence will impact the Fed's thinking, I want to bring in Mohamed El-Erian. He is a Bloomberg View columnist and a chief economic advisor at Allianz AG (OTCMKTS:ALIZF). Mohamed, great to see you. Thank you for joining us. Does all the market volatility we are seeing today, does it take a September rate hike off the table?

MOHAMED EL-ERIAN: It certainly reduces the probability significantly, and understandably so. If this volatility continues, which it will, then the Fed will be very cautious. It will not want to fuel further volatility. And in such circumstances, it will most likely wait and not initiate the interest cycle in September.

ALIX STEEL: So when do you think, Mohamed, that it will happen? And Barclays PLC (NYSE:BCS) (LON:BARC) now moved out their forecast to March of 2016 from September 2015. What's your call?

EL-ERIAN: So I think December is still on the table, and for the following reason. The economy will benefit from lower commodity prices, particularly oi. And the economy will benefit from lower interest rates. And that's going to fuel some underlying strength that the economy does have. The big question is how much damage are we doing to the wealth effect, and to what extent will external demand collapse? We cannot answer that question yet. So I would think December is still a possibility, but September is unlikely to happen.

STERNS: Wow. That's interesting, Alex. Ellen Zentner over at Morgan Stanley (NYSE:MS), she brought forward her rate hike call. I wonder if she is regretting that now. Mohamed, you said earlier this morning that the selloff, which by the way is picking up momentum throughout this interview, the Dow is back down I believe about 600 points right now, that the selloff will turn around once there is a policy circuit breaker put in place. What would that look like? What would government intervention have to look like to stabilize markets?

EL-ERIAN: So it's very important to understand...


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