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Top economist Mohamed El-Erian says most inflation ‘might have been avoided’ if Federal Reserve acted earlier

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Many of the current record high inflation might have been avoided had the Federal Reserve acted earlier and shown humility after it wrongly described inflation as “transitory,” economist Mohamed El-Erian said Sunday.

El-Erian, chief economic advisor at Allianz, appeared on CBS’s “Face the Nation” to debate what caused the present inflation and where it was more likely to be heading.

“We came because we got a mixture of things happening,” El-Erian said, citing the war in Ukraine, the energy transition, and the way the Fed incorrectly judged inflation and fell behind.

“All this stuff got here together and are feeding now this all the pieces inflation. The worth of nearly all the pieces goes up and making us feel really insecure,” he said.

El-Erian said that almost all of the inflation “might have been avoided if early motion had been taken” by the Fed, which must now regain credibility to ease long-term inflation expectations.

“I used to be very puzzled when a 12 months ago so many individuals were so confident that inflation was transitory,” he said. “There was a lot we didn’t understand in regards to the post-COVID inflation that humility would have been a superb idea.”

Top economist Mohamed El-Erian said the US could have avoided most of its inflation if the Federal Reserve acted earlier.Photo by Felix Hörhager/picture alliance via Getty Images

El-Erian said things still are not going well for the Fed since it has yet to clarify why it got the forecast “so fallacious for therefore long.”

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

He added that his most optimistic outlook is that the Fed regains control of inflation, which results in a “soft landing” – meaning that inflation comes down without sacrificing growth. 

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