Allianz' Mohamed El-Erian: There was no reason for Fed to hike at this meeting

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Hello, John. Yes, three dissenters, all of them wanted a quarter of a percentage point increase, and all three touched on familiar themes that justify a " hawkish" approach to raising rates now. Among these three topics—small increases now can help avoid large increases later. Inflation will not go away on its own, even if it is caused by supply shocks, and inflation has remained too high for too long.

Among those who disagreed, Dallas Federal Reserve Bank President Lori Logan writes: "Without policy restraint , inflation is likely to continue to exceed target." And then there was Beth Hammock from Cleveland. She noted: "Businesses describe price pressures as spreading rather than abating, and consumers express desperation over persistently high prices." Of course, nine officials voted to pause, and that's where the majority is now.

They haven't spoken yet. Fed Chairman Kevin Warsh. He even dismissed the possibility of calling this week's actions a " pause." Did the Fed make a clear change to its policy rate today? No. But I think this is the beginning of the story, not the end of it. This could mean that Warsh is closer to the hawks than most believe after his press conference, and perhaps he is waiting for more data to see which direction inflation is heading and whether the Fed needs to react.

John, there will be two CPI reports coming out by the next September meeting . Okay, that's a lot of useful data. Stay with us, Steve. I want to invite CNBC's Senior Economic Columnist Matt Peterson and Allianz's Chief Economic Advisor Mohammed El- Erian. Nice to see you both. Mohammed, before I move on to you, Matt, I believe you just published an article.

What is your opinion on how the market could have misinterpreted Chairman Worsh's comments? Yes, I think Steve really hit the nail on the head . Kevin Warsh, in my opinion, was much more "hawkish" than everyone heard. You know, the people who listened to his dialogue with reporters and concluded: " When is this guy finally going to raise interest rates?" They must have missed what he said in his prepared opening remarks, which he read at the beginning of the press conference, where he stated very clearly that the Fed is committed to achieving that very 2 percent target.

He talked about a potential balance sheet reduction, which he believes would tighten financial conditions. And he made a few more comments that, in my opinion, just got mixed up when he started debating with reporters. Muhammad, do you think everything was unclear? Absolutely not. Um, first of all , I agree with what Matt and Steve said.

If you look at the nine who voted "yes," I strongly suspect that Kevin Warsh was among the most "hawkish " of those nine. Um, listen, I don't understand this whole trust in the Fed thing. Um, Brann said this very aptly at the beginning of the show. This is much ado about nothing. If you look at the data, there was no reason to raise the rate at this time.

If you look at what Warsh did, he did exactly what he promised us. He doesn't like traditional forecasts, and he has good reasons for that. And he doesn't want to get ahead of the working group's events. So there was nothing strange. I think, John, what you're seeing here is primarily that the market is nervous about removing the "training wheels." And you know that I have long believed that this codependency has gone too far.

And I'm glad we have a Fed chairman who is willing to address this problem. Muhammad, could it be that the market is listening to President Trump even though Warsh's lips are moving ? Again, no. Real rates have increased , not inflationary expectations. And I think the main problem that I've been talking about for the last few months is that if you do, John, a very simple analysis of the sources and uses of borrowed funds (what we did in the old days, before the era of excessive liquidity), you quickly realize that because of the budget deficit and the bond issuance by technology companies this year, rates should be going up.

We have amazing capital markets. They can finance innovation. They can fund things that will increase productivity. But in the short term, the cost of financing must increase to raise the funds needed for all potential uses of bond financing. OK. And Steve Liman, what I meant was that while the market is getting used to the way Warsh talks, we are already very used to the way President Trump talks.

And we know why he wanted to see Warsh in this position. And I'm wondering if you think the market reaction has anything to do with that.