- The Fed is likely to severely damage the economy by hiking
interest rates hard in 2022,Mohamed El-Erian has said. - The veteran economist said the Fed has left it too late and will now be forced to slam on the brakes to contain inflation.
The
El-Erian, chief economic adviser to Allianz, $4 Monday that the Fed has moved too late to tackle inflation and will now be "forced into slamming on the policy brakes."
US inflation shot up to $4 in January. The Fed is widely expected to start raising interest rates in March, in an effort to reduce borrowing, spending and demand in the economy.
El-Erian, who has $4 the Fed's approach to inflation, said that the
He said there's a 40% chance "that economic growth is severely damaged by a late Fed that is forced into slamming on the policy brakes in response to persistently high inflation."
The economist said there's a 30% chance that the Fed simply gives up, for a period, on its aim of getting inflation to around 2%, instead hoping that supply chains will sort themselves out.
And he warned that there's a 20% chance that the Fed harms economic growth but fails to control inflation, resulting in so-called stagflation.
Read more: $4.
El-Erian wrote in $4 that stagflation is "the most worrisome outcome for livelihoods, financial stability and policy effectiveness."
All the uncertainty "requires investors to anticipate more unsettling volatility and have a strong stomach for dealing with it (remember, many of the major investment mistakes occur at such times)."
El-Erian was previously CEO of and co-chief investment officer of giant investment management company Pimco.
JPMorgan said at the weekend that it now expects the Fed to raise interest rates $4. It said the hikes pose a risk to
Nervousness about the Fed — and the Russia-Ukraine crisis — has rocked markets this year. The $4 had fallen close to 9% this year as of Friday's close.
Given the precarious economic situation, stocks have not yet fallen enough for investors to start buying the dip, El-Erian said.