Mohamed El-Erian, chief economic advisor at Allianz and professor at the Wharton School joins CNBC's Carolin Roth at the Ambrosetti forum in Italy. El-Erian discusses the U.S. Treasury's intervention in the bond market and why he thinks it could hold unintended consequences. He also discusses the highly anticipated Fed decision and valuations in AI.
What Mohamed El-Erian said
Written from the verified transcript and checked against it. Every figure links to the moment it was said.
Mohamed El-Erian said the U.S. Treasury under Secretary Scott Bessent has overstepped by trying to impose market outcomes on long-term yields, a step too far in a massive market. He noted the September 9 auction will signal how serious the Treasury is about yield curve control. He argued pressure on Treasury yields stems from a fundamental supply-demand imbalance, not lost trust in U.S. assets, citing reduced buying from China, Japan, Gulf states, and possibly Norway's sovereign wealth fund. On the Fed, he praised Kevin Warsh's Jackson Hole speech for clarifying his reaction function, warning against forward guidance, and framing AI as a supply-side factor. He expects continued uncertainty from conflicting inflation data and AI's dual demand-supply effects, and sees no appetite for fiscal consolidation, with the UK, Japan, and France most vulnerable among G7 countries.
Key takeaways
El-Erian called Treasury's intervention a step too far and expects the September 9 auction to test seriousness about yield curve control.
El-Erian said Treasury pressure is due to a supply-demand imbalance from government and hyperscaler issuance, not a loss of trust in U.S. assets.
El-Erian praised Kevin Warsh for clarifying his reaction function, warning against forward guidance, and calling AI a potential factor of production.
El-Erian identified the UK, Japan, and France as the most vulnerable G7 countries, calling the UK the high-beta country.
woke up to. Of course, it was Vance pressuring the Fed to lower rates. Would Kevin Warsh heed that advice? I think he will hear it. But what most of us should hear is why it is that Vance wants lower rates: because of housing and because of the affordability issue. And it just gives you a sense that affordability has become so important politically that there will be pressure. And I think the main question here is not what does it mean for the Fed, what does it mean for the Treasury that he wants lower rates because of the mortgage market?
It's a big question because the intervention has proven to be short-lived in terms of its consequences. It was criticized. The secretary hinted that he may go further in this yield curve control world. And I think we have to see, the auction on the 9th will be particularly important because it will signal how serious the Treasury is about trying to influence long-term rates.
I think it's unfortunate, Caroline, to tell you the truth. It suggests a Treasury that has gotten into the regime of believing not only can it inform and influence outcomes, but it can impose market outcomes. And I think that's a step too far. And the question now is how do you step back from this? I think the results are clear. It's a massive market. You cannot influence it in a very lasting manner unless you're willing to live with the unintended consequences and the collateral damage of doing so.
Well, you've started to hear it. He said in a press conference, "I wasn't there to influence the level of yields. I was there to try and reduce the consequences of illiquidity during the summer." So the narrative has shifted from the level of yield to the functioning of the market. You know, people question, well, there was nothing wrong with the functioning of markets, but you can see the narrative changing that it's no longer about trying to influence the level of yields. It's about improving the functioning of the market.
I don't think there's something wrong. What I do think is going on is that the reliable buyers and holders of US Treasuries are under pressure. China, for geopolitical purposes, is no longer as willing. Japan and the Gulf countries have domestic issues. And this morning, according to Financial Times, even the Norwegian Sovereign Wealth Fund may be thinking of reducing its weight of Treasuries.
Agreed. The size isn't big, but the signal that traditional holders and buyers are becoming less reliable is a very important one. You know, I did a very simple exercise a few months ago that we used to do all the time before this period of QE and zero interest rates, which is you look at the sources of bond financing and then you look at the uses of bond financing, and you ask the question, does it balance at these interest rates? And if you look at the amount of issuance that's coming from governments, from hyperscalers, from companies, it far exceeds what you can count on in terms of reliable buyers. And that's why there's been pressure on interest rates. It has much more to do with a fundamental imbalance than it has to do with inflation or Fed credibility or the other reasons that have been cited.
12 more exchanges in this transcript
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El-Erian, M. (2026, September 4). El-Erian: U.S. Treasury has taken a step too far [Interview transcript]. CNBC International Live. CEOInterviews.AI. https://ceointerviews.ai/interview/1307213/
MLA
Mohamed El-Erian. "El-Erian: U.S. Treasury has taken a step too far." CNBC International Live, 4 Sep. 2026. Transcript, CEOInterviews.AI, https://ceointerviews.ai/interview/1307213/.
BibTeX
@misc{elerian2026_1307213,
author = {Mohamed El-Erian},
title = {El-Erian: U.S. Treasury has taken a step too far},
howpublished = {Interview transcript, CNBC International Live. CEOInterviews.AI},
year = {2026},
month = {sep},
url = {https://ceointerviews.ai/interview/1307213/},
note = {Speaker-attributed transcript with timestamps}
}
