El-Erian Says Fed Made “Worst Inflation Call Ever”

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Assessment: El-Erian doesn’t believe peak inflation has arrived and thinks consumer price increases could remain elevated in the months ahead …

New data released Friday by the Bureau of Labor Statistics showed price inflation in November rose to the highest in four decades. Americans are getting antsy about persistent inflation wiping out their real wage gains as Allianz Chief Economic Advisor Mohamed El-Erian warned the Federal Reserve is losing credibility by not tapering its balance sheet to rein in inflation.

El-Erian told CBS’ “Face the Nation” on Sunday that the most significant miscalculation in decades is the Fed’s inability to characterize inflation correctly. As readers know, Fed Chair Jerome Powell retired the “transitory” narrative on Nov. 30 and opted to label inflation as persistent.

“The characterization of inflation as transitory — it’s probably the worst inflation call in the history of the Federal Reserve,” El-Erian said.

Scarcity on Earth

“And I heard a voice in the midst of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not harm the oil and the wine.” Rev. 6:6

“It results in a high probability of a policy mistake,” he said. “So the Fed must quickly, starting this week, regain control of the inflation narrative and regain its own credibility. Otherwise, it will become a driver of higher inflation expectations that feed off themselves.”

El-Erian said Powell “needs to ease his foot off the accelerator” in reference to the $120 billion in bond buying every month. He said there is “no reason why they [Fed] should be injecting so much liquidity,” adding that the Fed should not be boosting housing prices at a time when an unaffordability crisis is emerging.

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