Allianz's El-Erian says September rate hike 'really tough policy call'

August 21, 2015 10:45 AM EDT

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By Jennifer Ablan

NEW YORK (Reuters) - Mohamed El-Erian, chief economic adviser at Allianz SE, said on Friday that the U.S. Federal Reserve might not raise interest rates in September against a backdrop of slowing global economic growth.

"It's a really tough policy call," El-Erian said in an interview with Reuters. "Not only do domestic indicators conflict with external ones, but the Fed itself has only a partial handle on the economy - and inevitably so. This is a time of significant policy uncertainty, particularly given that what's on the table is a policy regime change - namely the first interest rate hike in over nine years."

China, the world's second-biggest economy, showed unexpectedly weaker growth in factory output, investment and retail sales in July. Its central bank also surprised markets by pushing the yuan lower on Aug. 11 in the nation's biggest devaluation in two decades. China's yuan dropped by a cumulative 4.4 percent against the U.S. dollar last week, causing waves around global markets.

In addition, economic growth in the euro zone slowed in the second quarter as France stagnated and Italy lost momentum, data released on Aug. 14 showed.

El-Erian said the U.S. central bank is operating without the support of other policymakers. "And its models haven't done a great job of predicting economic developments, and understandably so given all the structural changes here and abroad," he said.

El-Erian added that he doesn't believe a global crisis is brewing. "The classic combination of contagion and market overshoots is brewing. Started with emerging market currencies and has been spreading through corporate and equity markets."

(Reporting By Jennifer Ablan; Editing by Bernadette Baum and Paul Simao)

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