The Fed Must Decide Between Two Policy Mistakes, Says Economist – Bitcoin News Economics

Mohamed El-Erian, Allianz’s chief economic adviser, says the Fed has to “decide between two policy errors”. One risks causing a recession and the other could prolong inflation until 2023. “I think it’s time for a weak decline,” the economist stressed.

Mohamed El-Erian on inflation, recession and the American economy

Economist Mohamed El-Erian discussed where the US economy is headed and the Federal Reserve’s plan to control inflation in an interview with Bloomberg on Friday.

El-Erian is Senior Economic Adviser at Allianz, the parent company of PIMCO, one of the largest investment managers, where he served as CEO and Co-Chief Investment Officer. He is also President of Queen’s College, University of Cambridge.

He was asked what is possible for Federal Reserve Chairman Jerome Powell in the current economic environment. “At best,” the economist replied, “this is what President Powell called a ‘soft’ landing, and the ‘nest’ is really important.” He explained:

I think it’s time for a quiet landing.

He continued, “We could have done it but that would have implied the Fed’s move nine months ago. It should have been. It didn’t. So, instead of stressing about a growing and dynamic economy, it’s heading toward a slowing economy.”

The economist noted that “it is very difficult to have a smooth landing,” and stated that “the best you can hope for now is a soft landing.” However, he said the likelihood of that happening is “not as high as [he] would like to be.”

Al-Arian also said:

The Fed will have to decide between two policy errors. Squeeze the brakes hard and risk stagnation or slam the brakes into a stop… and risk inflation until 2023.

The Allianz economist is not the only warning that the US economy may be heading into a recession. Tesla CEO Elon Musk said last week that we are either already in a recession or approaching it. However, he sees it as a good thing.

Blackrock, the world’s largest asset manager with nearly $10 trillion under management, similarly said last week:

so they [the Fed] Raising interest rates too much, they risk causing a recession. If not tightened enough, the risk becomes runaway inflation.

What do you think of Al-Arian’s comments? Let us know in the comments section below.

Kevin Helms

Kevin, an Austrian economics student, found Bitcoin in 2011 and has been a missionary ever since. His interests lie in Bitcoin security, open source systems, network effects, and the intersection between economics and cryptography.