Economist Warns Fed Cannot Meet Inflation Target Without Crushing US

Economist Warns Fed Cannot Meet Inflation Target Without “Crushing” US Economy

Economist warns Fed can't hit inflation target 'without wrecking economy'

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

The Fed could destroy the US economy, the economist warns

Economist Mohamed El-Erian warned on Friday that the Federal Reserve could not meet 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 Economic Adviser 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 pointed out in an interview with Bloomberg Television. He emphasized:

I don’t think they can get the CPI to 2% without wrecking 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 0.5% in January, the most since October. On an annual basis, consumer prices increased by 6.4% in January compared to 6.5% in December. Following the CPI report, several Fed officials said the Federal Reserve may need to raise interest rates above initial expectations to dampen ongoing price pressures.

The Allianz economic adviser explained that there are several factors that require a higher target inflation rate. These include supply-side developments, including an energy transition, changing 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 consider 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 to an elusive 2% target to pursue. In January, El-Erian forecast that inflation could “stick” around the 4% range.

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

You can’t change an inflation target if you’re so far off target.

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

Crypto Gets Bigger NFTs Will Grow Very Significantly – Featured

Kevin Helms

As an Austrian economics student, Kevin discovered Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the interface between economics and cryptography.

photo credit: Shutterstock, Pixabay, WikiCommons

Disclaimer: This article is for informational purposes only. It is not a direct offer, or a solicitation of an offer to buy or sell, or a recommendation or endorsement of any product, service, or company. does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

More Popular News

In case you missed it