Investors hoping for a pivot should be careful what they wish for as a rate cut at this point will be in response to an economic accident, Mohamed El-Erian warns

• Investors who are hoping for a policy pivot should be careful what they wish for, Mohamed El-Erian warned.
• The top economist told Bloomberg TV that a rate cut at this point would be a response to a major shock.

Investors who are hoping for a policy pivot should be wary, as a rate cut at this point would be the Federal Reserve's response to a major shock, according to top economist Mohamed El-Erian.

After inflation showed signs of cooling off over the summer, some on Wall Street called for the Fed to pivot away from its tightening campaign. But policymakers have been steadfast in their commitment to bringing inflation down to their 2% target.

"All of you who are looking for a pivot be careful what you wish for. Because this pivot only happens if you have an economic accident or a financial accident. And the journey to an economic accident and financial accident is a very painful journey," El-Erian, chief economic adviser at Allianz, said in an interview with Bloomberg TV on Friday.

To be sure, notable market bears have been sounding the alarm on possible financial calamities. "Big Short" investor Michael Burry warned that aggressive Fed rate hikes could mean a market crash even more severe that what unfolded in 2008, and economist Nouriel Roubini has warned stocks could sink as much as 40%.

Meanwhile, the UK bond market threatened to crash this week as yields soared after tax-cut plans were unveiled, forcing the Bank of England to buy gilts.

That followed recent moves from other global central banks, including the Bank of Japan's intervention in the currency market to prop up the yen.

On Friday, El-Erian dismissed such emergency actions as short-term Band-Aids. "And it tells you that the global economy is not clearing on its own. Or if it's allowed to clear on its own, there's going to be a lot of collateral damage. When you distort an economy for so long, getting out of the distortion is by definition problematic," he warned.