Allianz chief economic adviser Mohamed El-Erian said in an interview that the current inflation problem in the United States could have been largely avoided if the Federal Reserve acted earlier.
“The problem for us all is they’re far away from the first best response,” El-Erian told
CBS’ “Face the Nation” on June 12. “This is going to have enormous economic, social—it hits the poor—particularly hard institutional and political consequences. And most of it could have been avoided, had early actions been taken,” he added.
“The lesson of history is, once you fall behind,” he said, “you end up in this awful situation that we’re in today, where you need to make a choice. Do you slam on the brakes hard to control inflation and risk of recession? Or do you just tap on the brakes and risk inflation lasting much longer than it should?”
He spoke as the U.S. annual inflation rate
surged to 8.6 percent in May, topping the market estimate of 8.3 percent, according to official data. Being one of the largest contributors to the spike, the average gas price nationwide also
hit $5 a gallon for the first time in history on June 11, the American Automobile Association recorded, as the average topped $6.43 in some states such as California.
Despite the central bank’s current
tightened monetary policy to fight inflation by implementing a series of rate hikes, El-Erian said long-term inflation expectations are now standing at a 15-year high of 3.3 percent.
“We got here because we got a combination of things happening,” the economist said during his Sunday appearance, citing external factors including the Ukraine war, energy transition, as well as the Federal Reserve’s misjudgment and delay in acting.
President Joe Biden said earlier this month that he
wouldn’t be able to bring down gas and food prices in the short-term, citing the war in Ukraine that has trapped the country’s wheat exports as an external cause for inflation.
The administration has been
playing down the risk of recession over the past year and dismissed taking responsibility for policy-driven inflationary pressures. The president’s top economic adviser suggested last month that Americans be confident during what he called a “
period of transition” of COVID-19 recovery.
“Humility is totally called for,” El-Erian said. “I was very puzzled when a year ago so many people were so confident that inflation was transitory. There was so much we didn’t understand about the post-COVID inflation.”
The current stagflation with low growth and high inflation would lead to a recession, he said, continuing with his most optimistic outlook of the Fed’s regaining control and a “soft landing” of the economy without tanking the economy.
A spokesman for the U.S. Federal Reserve did not immediately respond to a request for comment.
The Fed’s Vice Chair Lael Brainard
said on June 2 that September would see another big rate increase if inflation did not moderate.
