GEOFF BENNETT: Welcome to the "News Hour."

The U.S. labor market slowed down notably# last month and looked weaker than expecte.. creating just 114,000 new jobs.# That's down significantly from## the average of 215,000 jobs a month# over the past year.

The unemployment## rate ticked up again to 4.3 percent.# That's the highest since late 2021.

The reaction to today's report is raising# questions for the second time in as many## days about whether the Federal Reserve# has waited too long to cut interest rates.

Economist Mohamed El-Erian is# among those who have been very## vocal about this.

He's the president of# Queens College, Cambridge University,## and the chief economic adviser# at Allianz.

And he joins us now.

Thanks so much for being with us.

MOHAMED EL-ERIAN, Chief Economic# Adviser, Allianz: Thanks for havi.. GEOFF BENNETT: First, a question# about this jobs .. it and recent economic data tell you# about where the economy is right now?

MOHAMED EL-ERIAN: They tell us that the economy# is weakening in a much broader and much faster## rate than most people expected,# including the Federal Reserve.

GEOFF BENNETT: Is this weakening or# slowdown the direct result of the## Fed's strategy of keeping interest# rates high to fight inflation?

MOHAMED EL-ERIAN: It is.

And it was meant# to slow the economy.

The question is,## do you get a normalization or do you get something# worse?

Or to use the economic language, do you get## a soft landing, where you sacrifice some growth,# but it's worth it for bringing down inflation,## or do you get a recession, where# you damage Americans' well-being## even more after having hit them# with very high price increases?

A set of data that we have had recently, as# well as what you're hearing from companies,## suggests that this is beyond the# normalization.

So you have got two## concerns right now, and you see this in# the marketplace.

One is about the growth## scare and the second one is about# another policy mistake by the Fed.

GEOFF BENNETT: Does this raise the specter of# a recession further down the line in your view?

MOHAMED EL-ERIAN: So my probability# for a recession is about 35 percent.

So## it's not the dominant scenario,# but we have got to be careful.

A recession would really damage the economy and# would be particularly for low-income households.## They are already suffering, Geoff.

They're# suffering from having run down all the pandemic## savings.

Hiring is slowing down.

Their credit# is maxed out.

So the last thing you want to do## is unduly damage the labor market,# because that's the only source of income.

There are no other buffers now# for the low-income households.

GEOFF BENNETT: Was the Fed late# in recognizing this slowdown,## this weakening, as you have described it?

MOHAMED EL-ERIAN: Yes.

And it's the# second big policy mistake, in my opinion,## since we have had the pandemic.

The# first one now is broadly recognized.## They called inflation transitory, when# it was something much worse than that,## and, therefore, they were slow# in moving against inflation.

And now I fear that they are slow in# moving against economic weakness.

So## if they're not careful, they will end# up making both mistakes in one cycle.

GEOFF BENNETT: What kind of cut# should we expect at the September## meeting?

Are we looking at a half-point or# a quarter-point cut in the interest rate?

MOHAMED EL-ERIAN: And that was remarkable,## because, as of two or three days ago,# the narrative in the m.. oh, they have time.

Only a handful of us were# warning that they should start immediately.

Now, suddenly, the market has priced# in a 70 percent probability of a cut## by half-a-percentage points.

Now, normally,# the Fed cuts by quarter-percentage points.## So if it starts with half-a-percentage# point, that is quite a signal.

My gut## feeling is they won't do that, is they# will cut by a quarter-percentage point?

But 70 percent of the marketplace# believes that it will be more than that.

GEOFF BENNETT: Something in particular# in this jobs report struck me and our## team here.

It's that those unemployed for 27 weeks## or more now totaled 1.54 million people.# This is the most since February of 2022.

Can people hope for a significant# uptick in hiring if the Fed starts## making these interest rate# cuts?

Are the two connected?

MOHAMED EL-ERIAN: It will take time.# One of the accepted elements about## monetary policy is that whether you raise# interest rates or you cut interest rate,## this acts with long and variable lags.

So it doesn't have any immediate effect.

In# fact, we are still feeling the consequences of## what was an enormous increase in interest# rates in a very short period of time,## over 5 percentage points that had# to be done very quickly because## the Fed fell behind.

So it will take# time to feel the impact of the cut.

And I'm glad you focus on this# point of longer-term unemployment,## because what we know from history# is the longer you are unemployed,## the more unemployable you become.

And that is# a real social, economic and political issue.

So it is important that we avoid long# term unemployment going up even higher.

GEOFF BENNETT: Mohamed El-Erian, always a pleasure# to speak with you, sir.

Thanks for being with us.

MOHAMED EL-ERIAN: Thank you.