Most of the current record-high inflation might have been prevented had the Federal Reserve acted earlier, and admitted that they were wrong after mistakenly explaining inflation as “transitory,” financial expert Mohamed El-Erian stated on June 12th.
El-Erian, the chief economic advisor at Allianz, appeared on CBS’s “Face the Nation” to go over what triggered the existing inflation and where it was most likely to be heading.
“We got here because we got a combination of things happening,” El-Erian said, citing the war in Ukraine, the energy transition, and how the Fed incorrectly judged inflation and fell behind.
“All these things came together and are feeding now this everything inflation. The price of nearly everything is going up and making us feel really insecure,” he said.
El-Erian stated that the majority of the inflation “might have been prevented if early action had actually been taken” by the Fed, which need to now restore trustworthiness to alleviate long-lasting inflation expectations.
“I was very puzzled when a year ago so many people were so confident that inflation was transitory,” he said. “There was so much we didn’t understand about the post-COVID inflation that humility would have been a good idea.”
El-Erian stated things still are not working out for the Fed due to the fact that it has yet to discuss why it got the projection “so wrong for so long.”
El-Erian fears that in this present duration of “stagflation”– low development, high inflation– inflation might reach 9%. He called it the darkest image of what might cause an economic downturn.
He included that his most positive outlook is that the Fed restores control of inflation, which results in a “soft landing”– implying that inflation boils down without compromising development.
Five days later El-Erian indicated on CNBC’s Squawk Box,“It’s about time we exit this artificial world of predictable massive liquidity injections, where everybody gets used to zero interest rates, where we do silly things where there is investing in parts of the market we shouldn’t be investing in, or investing in the economy in ways that don’t make sense,” he said. “We are exiting that regime, and it’s going to be bumpy.”
H/T The New York Post, YahooFinance
