Mohamed El-Erian says markets need to stop their 'love affair' with a Fed pivot

• Markets need to quit thinking the Fed will pivot away from hiking interest rates, El-Erian said.
• The Fed will only pivot if a market accident occurs, he said. "We should not be wishing for that."

Top economist Mohamed El-Erian said markets need to end their "love affair" with a Fed pivot where the central bank would reverse course on its aggressive monetary tightening.

"We have to stop with this love affair with the pivot," he told CNBC on Monday.

The chief economic adviser at Allianz suggested investors should instead focus on the Federal Reserve's ability to balance high inflation, employment and financial stability.

His comments came in response to the fiasco surrounding Credit Suisse and whether optimistic futures on the bank's shares suggest investors are anticipating the Fed will lower interest rates.

Credit Suisse is deep in turmoil as the Swiss banking giant's financial health has come into question. Shares tanked nearly 8% on Monday amid panic about the bank potentially suffering a Lehman Brothers-style collapse as it finalizes a restructuring plan due to be revealed October 27.

Despite that, El-Erian noted that the Fed won't change course on its current hawkish policy to fight inflation unless something in the economy goes wrong. "If the Fed pivots it's because we've had either an economic accident or a market accident — we should not be wishing for that," he said, adding that the journey to a pivot would be painful.

The Fed has aggressively been trying to stamp out 40-year high inflation running through the US economy by raising interest rates at a fast pace. Its tight monetary policy has already included three outsized 75-basis-point rate hikes, a 50-basis-point rate hike, and a 25-basis-point rate hike, with markets anticipating the central bank will lift rates again next month and early next year.

But now the focus has shifted to the Fed loosening its hand on rate increases, triggered by a surging dollar and the so-called Bank of England pivot when it intervened in the bond market last week with plans to temporarily purchase £65 billion in long-dated UK government bonds.

While El-Erian squashed the likelihood of a Fed pivot, others like a UN trade group urged central banks to calm down on excessive tightening as it risks sparking a global recession.