(The Street) - Renowned economist Mohamed El-Erian has argued for months that the Federal Reserve is moving too slowly to tighten monetary policy, and now it’s reaching a troubling stage, he says.
“I think the Fed is losing credibility,” he told CNBC Monday. “I’ve argued that it is really important to reestablish a credible voice on inflation, and this has massive institutional, political and social implications.”
Consumer prices soared 6.2% in the 12 months through October, the highest inflation since December 1990.
The Fed indicated earlier this month that it will start tapering its bond purchases this month and expects to finish the process around the middle of next year. Many economists expect the central bank to begin raising interest rates soon after that.
“We are in this transition of central banks mischaracterizing inflation,” El-Erian said. “The repeated narrative: ‘It is transitory, it is transitory, it is transitory.’ It is not transitory.
“We have ample evidence that there are behavioral changes going on. Companies are charging higher prices, [and] there’s more to come.... And then wage behaviors are changing.”
Meanwhile, President Joe Biden could decide this week whether to reappoint Federal Reserve Chairman Jerome Powell when his term expires in February. The other choice appears to be Fed Gov. Lael Brainard.
The decision has divided the Democratic party, with progressives supporting Brainard. They believe a Fed under her leadership will be more stringent on banks and more receptive to progressive ideas in general.
But moderates think Powell has done fine and worry that financial markets will react negatively to a change in leadership.
By DAN WEIL
Mon, November 15, 2021
Dan is a freelance writer whose work has appeared in The Wall Street Journal, Barron's, Institutional Investor, The Washington Post and other publications.
