Mohamed El-Erian Expects Fed To Hold Rates, Warns US-China Trade War Impact Will Show In This Key Economic Data

Tanya Rawat

Tue, May 6, 2025, 5:51 AM 2 min read

Economist Mohamed El-Erian predicts the Federal Reserve will maintain current interest rates amid ongoing global economic uncertainty and growing trade tensions with China.

What Happened: El-Erian, Allianz Chief Economic Advisor, wrote on X that the “highly data-dependent Federal Reserve” would likely “find it hard to do anything other than leave interest rates unchanged” at its upcoming meeting.

The prominent economist highlighted several central bank meetings scheduled for this week, noting divergent approaches expected across global economies, including “a UK cut and a Brazil hike.”

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El-Erian highlighted upcoming economic data that could show the effects of rising U.S.-China trade tensions, especially China's Caixin PMI—a key gauge of private sector activity—and, to a lesser extent, factory output indicators in Europe.

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Why It Matters: His comments come as recent data already shows concerning signs in China’s economy, with April manufacturing activity contracting for the first time in three months. The official manufacturing Purchasing Managers’ Index fell to 49.0, marking its weakest performance since mid-2023 amid falling export demand.

The observations align with shifting market expectations around future Fed policy. Betting markets tracked by Kalshi now favor just two rate cuts for 2025 with a 24% implied probability, while the likelihood of only one cut jumped seven percentage points to 19% in a single day.