Watch out for another Fed policy mistake given these 'clouds on the horizon' in the jobs report, Mohamed El-Erian says
- The latest jobs report showed there are economic 'clouds on the horizon', Mohamed El-Erian has warned.
- US labor force participation fell even as wages carried on rising, according to November's employment data.
The latest US jobs report has underscored economic risks that should put markets on edge about a potential Federal Reserve policy mistake, Mohamed El-Erian has warned.
The economist said Saturday that November's nonfarm payrolls data — which showed the US economy adding a better-than-expected 263,000 jobs last month — offered insights on underlying labor-market imbalances that investors need to keep an eye on.
Labor force participation fell by 0.1 percentage point to 62.1%, according to the latest report — meaning that the share of Americans who are willing and able to work remains below the pre-pandemic level of 63.4%.
"There are clouds on the horizon," El-Erian told MSNBC's Ali Velshi. "One is labor force participation — how many people are in the labor force? It was already low and it came down, meaning that we have more supply issues."
Friday's data also showed wages rising 0.6% month-on-month, the fastest pace since January, which could potentially pressure inflation even higher due to consumers having more income to spend on goods and services.
It's more likely that the Fed will make a policy mistake in its battle against soaring prices if wages and prices both carry on rising, El-Erian warned.
The US central bank has been aggressively raising interest rates since March to tame inflation, but that has raised the risk of an economic downturn.
"Inflation remains a problem — yes it's coming down but it's not coming down fast enough and if anything this week's numbers suggest that the Fed is doing too little, too late," El-Erian said. "So put all that together, we remain exposed to the risk of a policy mistake and that's why people are still worried about a recession."