El-Erian: Fed Can’t Reach 2% Inflation Without Crushing Economy

The Federal Reserve won’t be able to get US inflation down to its 2% target without “crushing the economy,” economist Mohamed El-Erian warned on Friday, but he said the central bank is unlikely to officially change that goal post.

“You need a higher stable inflation rate. Call it 3 to 4%,” El-Erian, the chairman of Gramercy Funds and a Bloomberg Opinion columnist, told Bloomberg Television. “I don’t think they can get CPI to 2% without crushing the economy, but that’s because 2% is not the right target.”

Calling the Fed “too data dependent,” El-Erian said supply-side developments, including an energy transition, the change in supply chains during the pandemic, a tight labor market and shifting geopolitical issues, necessitate the higher target inflation rate.

“It’s right to take data into account but you’ve got to have a view of where you’re going,” he said.

Leave a Comment