International economist Mohamed El-Erian said the US Federal Reserve cannot bring inflation down and meet its desired 2% target without “crushing the economy.”
However, in an interview published by Bloomberg and viewed by Al Arabiya.net, Al-Erian indicated that “it is unlikely that the US Federal Reserve will change its policy.” The bank should set an inflation target above the current issue given that the 2% target is neither correct nor appropriate.
How has America’s producer price inflation changed the market calculation?
El-Erian is a global economist, chairman of the board of directors of Gramercy Funds and publishes opinion articles for the US agency Bloomberg.
“You need a higher stable inflation rate. I don’t think they can get the CPI to 2% without destroying the economy, but that’s because 2% is the wrong target,” El-Erian added. El-Erian suggests that the US Federal Reserve has set an inflation target of 3% or 4%.
El-Erian’s comments came after government data showed US consumer prices rose 0.5% in January, the biggest increase in three months, and the annual inflation rate was 6.4% higher than expected. %. Fed officials said the central bank may have to raise interest rates higher than expected to try to quell continued price pressure.
El-Erian described the Fed as “heavily data-driven” and said supply-side changes, including the energy transition, changing supply chains during the coronavirus pandemic, a tight labor market and changing geopolitical concerns, call for a higher inflation target.
“It’s right to take data into account, but you have to have an idea of where you’re going,” he said. El-Erian added that the problem now is that the Fed is stuck on an elusive 2% target. “You can’t change your inflation target if you’re well over it,” he said.
