"'Temporary Inflation' Was the Worst Judgment in Fed History"

Mohamed El-Erian, Allianz Chief Economic Advisor, Claims

Mohamed El-Erian, Chief Economic Adviser at Allianz [Image source= Bloomberg]

[Asia Economy Reporter Byunghee Park] Mohamed El-Erian, Chief Economic Advisor at Allianz, harshly criticized Federal Reserve (Fed) Chair Jerome Powell's remark that "inflation is temporary," calling it the worst policy judgment in Fed history.

According to Bloomberg News, El-Erian appeared on CBS's 'Face the Nation' on the 12th (local time) and pointed out that the Fed should hasten its tightening measures.

El-Erian said, "The statement defining inflation as temporary is probably the worst mention of inflation in Fed history."

He added, "Due to the Fed's wrong judgment, the risk of monetary policy failure has increased," and said, "The Fed must act quickly this week to regain control over inflation and restore its credibility."

This was a call for the Fed to intensify tightening at the final Federal Open Market Committee (FOMC) meeting of the year scheduled for the 14th-15th (local time). El-Erian warned that if the Fed does not expand tightening measures, it will further raise inflation expectations, ultimately causing prices to rise even more.

El-Erian said, "If the Fed honestly admits now that its judgment on inflation was wrong, it can solve the inflation problem."

He warned, "The Fed needs to take its foot off the accelerator and reduce liquidity. Otherwise, it may have to slam on the brakes within a few months, increasing the risk of the U.S. economy falling into a recession."

Earlier, former U.S. Treasury Secretary Larry Summers also warned of a possible recession in the U.S. At the Wall Street Journal (WSJ) CEO Council Summit on the 7th, Summers said, "Inflation has become clear," and "The likelihood that the Fed can curb inflation without a recession has decreased." He emphasized, "I see a 30-40% chance of the U.S. economy entering a recession within the next two years."

The U.S. Department of Labor announced on the 10th that the U.S. consumer price inflation rate reached 6.8%, the highest since June 1982.

El-Erian said, "I do not think the U.S. inflation rate has peaked," and predicted, "Inflation will remain at the current level for the next few months."