Chief Economist Mohamed El-Erian says most of the inflation “could have been avoided” if the Fed had acted earlier

Economist Mohamed El-Erian said on Sunday that most of the current record high inflation could have been avoided had the Federal Reserve acted earlier and showed humility after incorrectly describing inflation as “temporary”.

El-Erian, Allianz’s chief economic adviser, appeared on CBS’ “Face the Nation” to discuss the cause of current inflation and where it is likely to go.

“We got here because we got a bunch of things happening,” El-Erian said, citing the war in Ukraine, the energy transition and how the Fed misjudged inflation and slumped.

“All these things came together and now fuel everything swells. The The price of almost everything is going up And it makes us feel really insecure.”

El-Erian said most inflation “could have been avoided if early action” had been taken by the Fed, which should now regain credibility. Reducing long-term inflation expectations.

“I was very baffled when a year ago a lot of people were confident that inflation was temporary,” he said. “There was so much we didn’t understand about post-COVID inflation that being humble would have been a good idea.”

El-Erian said things are still not going well for the Fed because it still has to explain why it got the “very wrong” forecast for too long.

El-Erian fears that inflation in this current period of “stagflation” – low growth, high inflation – will reach 9%. He described it as the darkest picture of what could lead to a recession.

He added that his most optimistic forecast is that the Federal Reserve regains control of inflation, resulting in a “soft landing” – meaning that inflation falls without sacrificing growth.