"I can't recall a more significant repricing of rate reductions," said Mohamed El Erian on US bond rates

"I can't recall a more significant repricing of rate reductions," said Mohamed El Erian on US bond rates

The top economist said that low growth and rising inflation are "problematic" for the economy and markets after the dismal US growth statistics for the first quarter.

Prominent economist Mohamed El Erian also clarified why rate cuts are not likely to result from the US's slower GDP growth.

Prominent economist Mohamed El-Erian has offered insights on the extraordinary velocity with which the US bond markets revalued the reduction in interest rates.

The personal consumption expenditure (PCE) index, which measures inflation, continues to be alarmingly high even if the US GDP growth rate for the first quarter of the fiscal year was less than anticipated. As a result, rate decreases have completely defied market expectations.

From seven rate cuts this year to one by year's end, that is no longer the market's assumption. Should rates remain high, long-term bonds become less attractive, see a decline in price, and see an increase in yields. Yields and bond prices have an inverse relationship.

El-Erian, the Chief Economic Advisor at Allianz and President of Queen's College, University of Cambridge, wrote on X about the "dramatic" speed with which the markets adjusted to the shift in expectations.

In response to the data (the US GDP statistics), the whole US yield curve moved higher, he noted. "The 2-year traded above 5 percent as markets pushed for a December rate cut by the Federal Reserve," he stated.

"Wow, it's unbelievable to think that #markets were searching for seven cuts as of last month, only four months ago," he said. Such a significant rate reduction repricing in such a little amount of time is unheard of in my memory."

He clarified why slower GDP growth won't result in rate reductions in a previous piece.

Sadly, another strong inflation print would completely destroy any optimism that the US GDP report (below) might relieve some of the pressure on US government bond yields and other rates: Core PCE inflation for the first quarter was 3.7%, much higher than the consensus estimate and the previous three months," he added.

"This combination — weaker growth and higher inflation — is hazardous for the economy and markets, with political and social spillovers," he said.