Economist Warns Fed Can’t Hit Inflation Target Without ‘Crushing’ US Economy – Finance Bitcoin News

Economist Mohamed El-Erian, Allianz’s chief economic adviser and chairman of Gramercy Funds Management, has warned that the Federal Reserve cannot reach its 2% inflation target without crushing the US economy. “You need a higher stable inflation rate. Call it 3% to 4%,” suggested the economist.

Fed could crush US economy, warns economist

Economist Mohamed El-Erian warned Friday that the Federal Reserve cannot reach its 2% inflation target without “crushing the economy.” El-Erian is President of Queens’ College, Cambridge University, and Chairman of Gramercy Funds Management. He is also chief financial advisor at Allianz, the parent company of PIMCO, one of the largest investment managers.

“You need a higher stable inflation rate. Call it 3% to 4%,” the economist emphasized in an interview with Bloomberg Television. He emphasized:

I don’t think they can get CPI to 2% without crushing the economy, but that’s because 2% isn’t the right target.

El-Erian’s comments followed the government’s Consumer Price Index (CPI) data released on Tuesday. On a monthly basis, prices rose by 0.5% in January, the most since October. On an annual basis, consumer prices rose 6.4% in January, down from 6.5% in December. After the CPI report, several Fed officials said the US central bank may have to raise interest rates beyond initial expectations to curb ongoing price pressures.

Allianz’s financial advisor explained that there are several factors that necessitate a higher target inflation rate. They include supply-side developments, including an energy transition, changes in supply chains during the pandemic, a tight labor market and shifting geopolitical issues.

El-Erian said the Federal Reserve is “too data dependent.” Noting that “it’s right to pay attention to data, but you have to have a view of where you’re going,” he warned that the problem now is that the Fed is stuck chasing an elusive 2% target. In January, El-Erian predicted that inflation could become “sticky” around the 4% range.

The economist previously warned that the Federal Reserve could lose credibility if it changes its inflation target. He meant:

You can’t change an inflation target when you’ve missed it by so much.

Do you agree with the economist that the Fed cannot reach its 2% inflation target without crushing the US economy? Let us know in the comments section below.

Kevin Helms

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