Economist Mohamed El-Erian, chief economic advisor to Allianz and chairman of Gramercy Fund Management, has He warns that the Federal Reserve will not be able to achieve its 2% inflation target without bankrupting the U.S. economy. This economist suggested, “We need a higher, more stable inflation rate, let’s call it 3% to 4%.”
Fed May Crush U.S. Economy, Economist Warns
Economist Mohamed El-Erian warned Friday that the Federal Reserve cannot achieve its 2% inflation target without “crushing the economy.” El-Erian is president of Queens College at the University of Cambridge and chairman of Gramercy Funds Management. He is also chief economic advisor to Allianz, the parent company of PIMCO, one of the largest investment managers.
“You need a higher, more stable inflation rate, call it 3% to 4%,” this economist stressed in an interview with Bloomberg Television. He stressed that.
I don’t think you can get the CPI to 2% without crushing the economy, because 2% is not the right target.
El-Erian’s comments came in response to the government’s consumer price index (CPI) data released on Tuesday. On a month-over-month basis, prices rose 0.5% in January, the highest since October. On an annual basis, consumer prices rose 6.4% in January, down from 6.5% in December. In response to the consumer price index, several Fed officials said the U.S. central bank may need to raise interest rates beyond initial expectations to contain ongoing price pressures.
Allianz economic advisors explained that there are several factors that would necessitate an increase in the target inflation rate. They include supply-side developments such as the energy transition, changes in the supply chain during a pandemic, tight labor markets, and changing geopolitical issues.
El-Erian noted that the Fed is “too data-dependent.” He noted that “it is right to consider the data, but you have to have a vision of where you are going,” and warned that the problem now is that the Fed is stuck chasing the elusive 2% target In January, El-Erian said inflation could get “sticky” in the 4% range He predicted.
The economist had previously warned that the Fed could lose credibility if it changed its inflation target. He opined that.
The inflation target cannot be changed when it is so far off.
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