Top economist sees coming ‘totally avoidable’ recession – caused by Fed mistakes that will ‘go down in history’
A top economist said on Sunday that the United States was heading for a “completely avoidable” recession. Moreover, the mistakes of the Federal Reserve will “go down in the history books” as blameworthy.
Mohamed El-Erian, Allianz’s chief economic advisor, commented on CBS’s Facing the nation.
One mistake the Fed made, he explained, was “misunderstood inflation as transitory. By that, they mean it’s temporary, it’s reversible, don’t worry about it.”
The second mistake occurred when the Fed realized that inflation was “persistent and high,” he added. “They did not act. They didn’t act in a meaningful way.”
We now run the risk of the Fed making a third mistake, he said, which is that after not loosening the accelerator last year, “they are slowing down this year, which will push us into a recession.” recession… This is going to go down huge. Fed policy error. “
Recession ahead
The Fed has raised interest rates to fight inflation, but recession fears are growing. This week, Luck described the views of seven leading economic thinkers believe a recession is coming.
Federal Reserve Chairman Jerome Powell himself has gone from “looking for a gentle landing to a soft landing to now talk about pain,” noted El-Erian. “And that’s the problem. That’s the price of being late for the Federal Reserve.”
Now, he said, “the market is worried that the Federal Reserve will push us into a recession by overreacting to strong economic news.”
Among such news, the data released this week shows the US unemployment rate dropped last month from 3.7% to 3.5%. That could prompt a hawkish Fed to raise rates again.
El-Erian is not the only leading economist to criticize the Fed’s decisions. On Friday, Jeremy Siegel rip off the Fed for “braking too hard” by raising interest rates too high in an attempt to combat inflation.
“If they hold as tight as they say, keep raising rates until early next year, recession risks are extremely high,” he told CNBC. Asian street signs.
Siegel, a professor at the University of Pennsylvania’s Wharton School of Business, said the Fed should have started tightening monetary policy much earlier, but now “the pendulum has swung too far in the other direction.”
Tesla CEO Elon Musk support Siegel’s view after the economist delivered a particularly fiery rant last month against the Fed. Musk tweeted on September 24, “Siegel is clearly correct.”
The Fed’s Mistakes
Siegel, like El-Erian, said the Fed has made historic mistakes: “The last two years [are] one of the biggest policy blunders in the Fed’s 110-year history, to go easy when things are going boom.”
He continued: “They were too easy until 2020 and 2021, and now [impersonates the Fed], ‘We’re going to be the real hardliners until we disrupt the economy.’ I mean, that is absolutely to me, poor monetary policy would be an overstatement.”
As far as El-Erian is concerned, the Fed must now also repair its damaged reputation.
“It must not only overcome inflation but also restore its credibility,” he said on Sunday.
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