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The
Fed kept interest rates unchanged in a bow to worries about the
global economy, financial market volatility and sluggish
inflation at home, but it left open the possibility of a modest
policy tightening later this year.
"The Fed's decision to hold off on a rate hike reflects the
extent to which it is worried about further destabilization in
global financial condition spilling back and undermining the
U.S. recovery," El-Erian told Reuters. "They are reluctant to
add to international financial fragility - and they wish to
limit adverse spillback to the U.S. economy."
El-Erian said he thinks the Federal Reserve will hike at some
point this year "in the context of a concerted effort to shift
market expectations to focus on what will be the loosest
tightening in Fed history."
El-Erian added the U.S. central bank is operating without the
support of other policymakers. "And its models haven't done a
great job of predicting economic developments, and
understandably so given all the structural changes here and
abroad," he said.
Fed Chair Janet Yellen said developments in a tightly linked
global economy had in effect forced the U.S. central bank's
hand.
"The outlook abroad appears to have become less certain," Yellen
told a news conference after the Fed's policy-setting committee
released a statement following a two-day meeting.
(Reporting By Jennifer Ablan; Editing by Cynthia Osterman)
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