El-Erian says markets are worried the Fed could overreact to good economic news and send us into a recession
Economist Mohamed El-Erian said on Sunday that despite recent market volatility, the US economy “is on a bumpy road to the better” — unless the US Federal Reserve makes another mistake.
El-Erian, Allianz’s chief economic adviser, appeared on CBS’ Face the Nation to discuss the causes of the market volatility last week.
“The main source of this volatility is the changing perception of the Federal Reserve,” El-Erian said. “We are in this amazing situation… where good news for the economy bad news for the markets.”
El-Erian said markets are worried that the Fed will push us into recession by overreacting to strong economic news.
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“There is a possibility that the Federal Reserve will make another mistake and that this rocky path will actually change the destination,” the economist said. “That’s why the markets are on edge.”
El-Erian said the Fed had already made “two big mistakes” that he thought would “go down in the history books.”
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He said the agency’s first mistake was that it mischaracterized inflation as “temporary”, meaning it would be temporary. The second mistake, he said, was that she did not act meaningfully after inflation remained steady and high.
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“As a result, we risk mistake number three: by not slowing down the accelerator pedal last year, they are hitting the brakes this year, which will lead us into a recession,” El-Erian said.
Credit: www.foxbusiness.com /