Mohamed El-Erian, former chief executive of Pimco and dean of Queen's College, Cambridge, said the Fed might not cut interest rates "for quite some time" in the face of higher-than-expected inflation data, and might even tolerate higher inflation to protect economic growth. Mr. Erian argued on Wednesday that if the Fed were genuinely committed to its 2 per cent inflation target, it should theoretically raise rates now. But the reality is that the Fed is more likely to keep rates on hold, preserving growth and US "exceptionalism" by tolerating higher inflation. Bond traders have delayed bets on the Fed's next rate cut until December because of higher-than-expected US inflation. Swap contracts linked to the Fed's future decisions were repriced after January's CPI beat expectations. The market had expected the Fed to cut interest rates by September. The new level of interest rates means the market is betting that the Fed will cut rates by only 0.25 percentage points this year. "On the surface this is not good news for the Fed. They will continue to reassure the market that everything will be fine, but I think the pause button will last longer than the market expects," Mr. Erian said of January's CPI data.