Top economist Mohamed El-Erian says traders are too bullish on Fed rate cut expectations

“In my mind, it’s problematic that the market is pricing in so many rate cuts right now,” said El-Erian, president of Queens’ College, Cambridge. Bloomberg Television on Thursday. “The market is exaggerating.”

Treasuries fell on Thursday after Wednesday’s gains following the release of the Fed’s minutes and revisions to US jobs data. A Bloomberg gauge of Treasuries has risen about 1.8 percent so far in August.

In the last few days. Traders bolstered bets in the swaps market that Fed policymakers will ease policy by as much as one percentage point by the end of the year starting in September, with a cut of 25 or even 50 basis points likely. Minutes from the central bank’s July meeting signaled that several officials saw a case for cutting borrowing costs next month, and the latest jobs data – which revealed employment growth was much less robust than previously reported – reinforces that cuts are all but assured.

According to El-Erian, the Fed will more realistically cut borrowing costs by 75 basis points by the end of the year.

“There is this notion of a political response of a hard landing to get a soft landing, which has to be reconciled one way or another,” said El-Erian, who is also a Bloomberg opinion columnist. “The market will have to adjust at some point.”

Traders will be looking for clues about the Fed’s goal of easing as the central bank’s annual symposium in Jackson Hole, Wyoming, gets under way on Thursday. Chairman Jerome Powell will discuss the economic outlook on Friday.