alliance Chief economic adviser and well-known economist Mohamed El Erian has criticized the United States federal reservesaying the central bank made “two big mistakes that could go down in the history books”.
What happened: “One wrongly characterizes inflation as temporary. By that they meant it’s temporary, it’s reversible, don’t worry. That was mistake number one. And then mistake number two when they finally realized inflation was stubborn and high. They didn’t act wisely,” El-Erian said CBS News.
Also read: How to buy bonds
On the recession: The economist explained how the Fed’s actions are creating the risk of a recession. “And as a result, we risk mistake number three, which is by not taking your foot off the accelerator last year, they hit the brakes this year, which would push us into a recession,” he said.
The economist said the Fed must not only overcome inflation but also restore its credibility. “So yes, I fear there is a very high probability that we are risking a damaging recession that was entirely avoidable,” he said.
On the market: El-Erian also expressed concern about the current market volatility, noting that bonds designed to protect investments are down about 15%. “So there was nowhere to hide. That’s why people feel insecure. So they’re looking at their retirement plans with concern,” he said.
Stocks and bonds alike have been hit by aggressive interest rate actions by the Fed and other central banks. That SPDR S&P 500 ETF Trust SPY has lost over 24% since the beginning of 2022, while the Vanguard Total Bond Market Index Fund ETF BND has lost over 15% over the same period.
“The President is right. We are currently on what I believe is a bumpy journey to a better destination, and we must both steer the journey and prepare for the destination. There is a possibility that the Federal Reserve will make another mistake and that this bumpy journey will actually change destination. That’s why the…
