El-Erian fears the Fed misjudges the risk of inflation

The US Federal Reserve considers the rise in US consumer prices to be a temporary phenomenon. Market expert Mohamed El-Erian fears that the central bank is too relaxed about the inflation risk.

The inflation rates are increasing in the industrialized countries, the price increase is particularly strong in the USA. Consumer prices there climbed to five percent in May, the highest annual rate in almost 13 years. Producer prices also rose by 6.6 percent. This makes many investors nervous – in contrast to other observers. The US Federal Reserve (Fed) considers the sharp rise in the inflation rate to be a temporary phenomenon. Mohamed El-Erian, on the other hand, chief economic advisor at Allianz Insurance, is more critical of the whole thing. “Every day I see evidence that the inflation is not temporary,” he said according to the portal “finanzen.net” to the television channel “CNBC”.

The market expert expresses concerns that the Fed could fall into a fatal deficit, which it will then have to frantically eliminate. “History makes you very uneasy when you end up in a world where the Fed has to catch up,” says El-Erian. He assumes grave consequences if the central bank fails to take action in time. If necessary, the monetary authorities would have to adjust their monetary policy abruptly and raise interest rates earlier than planned. The Fed currently wants to increase the key interest rate in two steps by 2023. “If you were to actually look at the inflation figures, you would begin to have serious doubts about how fleeting the inflation is,” stresses market expert El-Erian.

Temporary imbalance

As long as the Fed holds on to its belief that inflation is a transitory phenomenon, that belief would matter to markets. A large part of the price increases recently occurred in industries that are of enormous importance for the recovery of the US economy, reports “finanzen.net”. This includes the prices for used cars, air travel and hotel accommodation. The Fed justifies the increases with a temporary imbalance between supply and demand.