El-Erian Sees Danger That Fed Will Do ‘Too Little’ on Inflation

Investors hunger for a hint from Federal Reserve Chairman Jerome Powell on Wednesday that the central bank may soon pivot from its path of stepped-up interest rates. That worries market strategist Mohamed El-Erian.

02 Nov 2022, 10:44 PM IST

Mohamed Aly El-Erian, chief economic advisor for Allianz SE, gestures as he speaks during a Bloomberg Television interview on the sidelines at the Ambrosetti Forum in Cernobbio, Italy, on Friday, Sept. 6, 2019. The 45th annual forum is titled "Intelligence On The World, Europe And Italy". Photographer: Giulio Napolitano/Bloomberg

(Bloomberg) -- Investors hunger for a hint from Federal Reserve Chairman Jerome Powell on Wednesday that the central bank may soon pivot from its path of stepped-up interest rates. That worries market strategist Mohamed El-Erian.

“Inflation is more problematic than what a downshift now would imply,” El-Erian, chairman of Gramercy Funds and Bloomberg Opinion columnist, said on Bloomberg Television’s “The Open.” “The risk is that they will do too little and that’s the higher risk going forward.”

Mohamed El-Erian, chief economic adviser at Allianz and Bloomberg Opinion columnist, says the path of US inflation is “too problematic” for the Federal Reserve to pivot from its current policy-tightening stance on “Bloomberg The Open.”Source: Bloomberg

The Fed is expected to raise rates by 75 basis points, extending its most aggressive tightening campaign since the 1980s. The decision will be announced at 2 p.m. in Washington and Powell will hold a press conference 30 minutes later. He may emphasize policymakers remain steadfast in their fight against the fastest inflation in four decades, while leaving options open for their December gathering, with markets split between another big move or a shift to 50 basis points.

A recent rally in stocks and bonds signal that some investors are anticipating a slowdown in rate hikes, figuring the Fed and other central banks will do enough to stem inflation while not causing economies to fall into recession.

El-Erian, who said more than a year ago that the Fed was behind the curve in addressing inflation, is concerned that “we are slowly slipping into stagflation. We may end up not doing enough on the inflation side and then end up in recession for Europe, near recession for the US and for China.”

And while critical of Powell and the team at the Fed, El-Erian made clear they are in a “really tricky” position.

“If I was sitting at the Fed right now, I would struggle in terms of where I would end up because the market has run away once again,” El-Erian said. Powell “is trying to optimize across three dimensions, all of which speak to his dual mandate” of keeping inflation in check while helping the US economy. “This is a tough meeting” for the Fed.

--With assistance from .

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