Federal Reserve Chair Jerome Powell faced sharp criticism from prominent economist Mohamed El-Erian following a Dallas Chamber event Thursday, where Powell’s cautious stance on rate cuts triggered significant market movements.

What Happened: El-Erian, Chief Economic Advisor at Allianz, critiqued Powell’s performance on social media platform X, noting that the Fed chair “struggled with smart questions” and “confused the economics of different possible scenarios.”

El-Erian suggested Powell might avoid similar interview formats in the future, particularly highlighting the chair’s unclear response regarding new monetary frameworks.

During the Dallas event, Powell emphasized the U.S. economy’s exceptional strength while maintaining a careful position on potential rate cuts. “Inflation is running much closer to our 2% longer-run goal, but it is not there yet. We are committed to finishing the job,” Powell stated, indicating no rush to lower rates despite market expectations.

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Why It Matters: The Fed chair pointed to increased productivity as a key factor in recent economic performance, noting that productivity growth over the past five years has outpaced the two decades before the pandemic. This strength, Powell suggested, allows for a more measured approach to monetary policy decisions.

The SPDR S&P 500 ETF Trust SPY, which tracks the benchmark S&P 500 index, fell 0.64% as investors recalibrated their rate cut expectations. Technology stocks felt the pressure, with the Invesco QQQ Trust QQQ, representing the Nasdaq-100 index, declining 0.69%. Small-cap stocks bore the brunt of the selling, as evidenced by the iShares Russell 2000 ETF IWM dropping 1.35%, according to data from Benzinga Pro.

Powell’s remarks triggered a sharp repricing in rate cut expectations, with the CME FedWatch Tool showing the probability of a December rate reduction falling to 58.9% from nearly 80%. This shift came after Powell emphasized the economy’s remarkable strength and indicated no urgency to lower rates.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.