Mohamed El-Erian, former CEO of Pimco and columnist for Bloomberg View, spoke with Bloomberg TV’s Olivia Sterns and Alix Steel about the selloff in stocks and the implications for Fed policy.

When asked whether we are looking at another 1998, El-Erian said: “I’m not a buyer that this is 1998. Nor am I am a buyer that that’s 2008. And in 1998 you had a lot of fixed exchange rates. Now you have fewer of those. And 2008 was about the payments and settlement system. This is not about the payments and settlement system. This is an old-fashioned repricing of two things.”

He added: “I’m not a buyer that this is the crisis of all crises. Yes, this is a very unpleasant repricing, very unpleasant. And it’s going to go quite deep, but it’s not going to derail the economy in a major way.”

El-Erian said he believes a December rate hike is still possible: “I think December is still on the table, and for the following reason. The economy will benefit from lower commodity prices, particularly oi. And the economy will benefit from lower interest rates. And that’s going to fuel some underlying strength that the economy does have. The big question is how much damage are we doing to the wealth effect, and to what extent will external demand collapse? We cannot answer that question yet. So I would think December is still a possibility, but September is unlikely to happen.”

Mohamed El-Erian

El-Erian: Market Now Is Not Like 1998 or 2008

El-Erian: Why a December Rate Hike is Still on the Table

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OLIVIA STERNS: All right. For more on whether this market turbulence will impact the Fed’s thinking, I want to bring in Mohamed El-Erian. He is a Bloomberg View columnist and a chief economic advisor at Allianz. Mohamed, great to see you. Thank you for joining us. Does all the market volatility we are seeing today, does it take a September rate hike off the table?

MOHAMED EL-ERIAN: It certainly reduces the probability significantly, and understandably so. If this volatility continues, which it will, then the Fed will be very cautious. It will not want to fuel further volatility. And in such circumstances, it will most likely wait and not initiate the interest cycle in September.

ALIX STEEL: So when do you think, Mohamed, that it will happen? And Barclays now moved out their forecast to March of 2016 from September 2015. What’s your call?

EL-ERIAN: So I think December is still on the table, and for the following reason. The economy will benefit from lower commodity prices, particularly oi. And the economy will benefit from lower interest rates. And that’s going to fuel some underlying strength that the economy does have. The big question is how much damage are we doing to the wealth effect, and to what extent will external demand collapse? We cannot answer that question yet. So I would think December is still a possibility, but September is unlikely to happen.

STERNS: Wow. That’s interesting, Alex. Ellen Zentner over at Morgan Stanley, she brought forward her rate hike call. I wonder if she is regretting that now. Mohamed, you said earlier this morning that the selloff, which by the way is picking up momentum throughout this interview, the Dow is back down I believe about 600 points right now, that the selloff will turn around once there is a policy circuit breaker put in place. What would that look like? What would government intervention have to look like to stabilize markets?

EL-ERIAN: So it’s very important to understand that without an external anchor, this market will continue to sell off. And what you have seen today on very heavy volume and this amazing, almost 1,000 point range in fluctuation, is that there are still quite a few people stuck in overextended positions. And the buyers don’t have that much conviction, and that’s why we’re selling off again towards the end of the session.

So we need that external anchor. Otherwise prices will have to go down a lot more to bring in buyers with conviction. What can that be? Unfortunately it’s not the Fed, it’s not the ECB. This one is different. The source of this dislocation is from the emerging world. And therefore what you need is something that stabilizes the emerging market over there. And that means China. So you need something credible out of China for that to act as your stabilizer.

STEEL: And what would the credibility look like? I mean we’ve seen the PBOC and the government intervene quite a lot within the stock market to try and prop it up. We’ve seen them try very different things when it tried to revitalize the government, like cutting the RRR, cutting reserve requirements. What would it be?

STERNS: And they’ve even devalued the currency.

EL-ERIAN: And well the devaluation of the currency, as I said at the time, was good in the medium-term, but was really bad in the short-term, because it added to the instability. The minute — you have to understand the regime in which we’ve been in. The regime in which we’ve been in is of central banks repressing volatility.

The minute you have the currency markets in the emerging world doing crazy things, which they have been, it becomes very difficult to stop that volatility from spreading into the system. And that’s exactly what has happened. The reason why I tell people to be cautious, because I don’t think China can come up that easily with a solution overnight.

They face a very complicated situation. And financial markets are not the first thing on their radar screen. They have other things on their radar screen. So that’s why this market is trying to find its own level, and therefore it’s clearing at a much lower level than most people had expected.

STERNS: Mohamed, what’s the why? What triggered all this selling effort, so many different explanations today, some people saying investors were just out over their skis on valuations, others saying there was a dislocation of the credit market, some macro explanations, oh this is what’s going to happen into a rate hike, and then others saying, no, no, it’s the volatility coming out of China. What do you tell people what caused this global selloff?

EL-ERIAN: So I just posted a column on Bloomberg View on this. Number one was the repricing of global growth. People recognized that China was weaker, and not just China, China, India, sorry,

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