Mohamed El-Erian, chief economic adviser at Allianz, said the Fed will have to “decide between two policy mistakes.” One risks triggering a recession, and the other could prolong inflation into 2023. “I think the time for a soft landing is over,” the economist stressed.
Mohamed El-Erian on Inflation, Recession and the US Economy
Economist Mohamed El-Erian discussed the direction of the U.S. economy and the Fed’s plans to control inflation in an interview with Bloomberg on Friday.
El-Erian is Chief Economic Advisor for Allianz, the parent company of Pacific Investment Management, one of the largest investment management companies, where he serves as CEO and Co-Chief Investment Officer. He is also the Principal of Queen’s College, Cambridge University.
He was asked what is feasible for Federal Reserve Chairman Jerome Powell in the current economic climate. The economist responded that “at best” it was “what Chairman Powell calls a ‘soft landing,’ and a ‘soft landing’ really matters.” He elaborated:
I think the time for a soft landing is over.
He continued: “We could have done it, but it would have meant the Fed would have acted nine months ago. It should have. It didn’t. So instead of tightening to a growing and vibrant economy, it’s tightening into a slowing economy.”
Noting that “a soft landing is very difficult,” the economist said, “the best you can hope for right now is a soft landing.” However, he said the chances of that happening “are not there. [he] hope so. “
El-Erian further argues:
The Fed will have to decide between two policy mistakes. Hitting the brakes too hard could cause a recession or hit the brakes in stop-and-go mode…and potentially inflation by 2023.
Allianz economists are not alone in warning that the U.S. economy may be heading for a recession. Tesla CEO Elon Musk said last week that we are either already in a recession or approaching a recession.However, he believes that this a good thing.
BlackRock, the world’s largest asset manager with nearly $10 trillion in assets under management, similarly said last week:
if they [the Fed] Raising interest rates too much risks triggering a recession. If they don’t tighten enough, the risk becomes runaway inflation.
What do you think of El-Erian’s comment? Let us know in the comments section below.
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