President Donald Trump‘s agreement with North Korean leader Kim Jong Un allows the market to focus on more pressing issues such as the Federal Reserve‘s policy meeting, economist Mohamed El-Erian told CNBC on Tuesday.
“Look for markets to say, ‘Great, that’s a first, good constructive step with what happened in Singapore,'” Allianz’s chief economic advisor said in a “Squawk Box” interview. “But we have other things on the radar screen that we’re looking at right now.”
The Jerome Powell-led Fed, which kicks off its two-day policy meeting on Tuesday, is widely expected to announce a rate hike on Wednesday afternoon.
Stock futures were relatively flat early Tuesday after Trump and Kim signed what’s being called a comprehensive denuclearization agreement at the conclusion of Tuesday’s historic summit in Singapore. The agreement said the two sides commit to hold follow-up negotiations and to cooperate to develop bilateral relations.
El-Erian, formerly CEO of bond giant Pimco, said the market sees Trump’s meeting with the North Korean dictator as a “first contractive step” that contains some “political risk.” However, he said, the market will keep it’s focus on the policy meeting and global growth.
El-Erian said last month that the central bank has done well so far but urged the Fed to only implement three interest rate hikes this year. “The market has priced that in. We have transitioned to that regime without major breakage,” he said at the time.
He also predicted that if Congress manages to pass an infrastructure bill, then the U.S. economy could break above 3 percent GDP growth. El-Erian expects 2.5 to 3 percent growth this year.
The Commerce Department reported in April that U.S. economic growth slowed in the first quarter, advancing at a 2.3 percent annual rate. However, GDP in the first three months of the year tends to be sluggish because of seasonal quirks.
El-Erian: Trump-Kim agreement allows market to focus on more pressing issue of the Fed