Before the expected meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve tomorrow to approve a new increase in interest rates in light of an unexpected rise in US inflation, Chief Economic Adviser at Allianz, Mohamed El-Erian, announced that US inflation may rise further, and that the risks of recession “tend in a negative way at the moment.”
“I think you have to be very moderate when judging the data we have on the inflation process,” Al-Arian, whose comments are being monitored by the markets, said in an interview with “Face the Nation” program broadcast on CBS, Sunday. “More yet. We could easily reach 9 percent inflation at this rate.”
The year-on-year increase in the US consumer price index unexpectedly accelerated to 8.6 percent in May, a 40-year high, which will likely push the Federal Reserve to continue its aggressive rate-raising cycle.
Al-Erian renewed his criticism of the Federal Reserve, accusing it of “delayed in the face of inflation.” An increase of about 50 basis points is expected at the upcoming meeting tomorrow, which is related to setting the interest rate.
“We are now living in a period of stagflation,” El-Erian continued, referring to the danger of persistent inflation that could eventually push the US economy into recession. He explained that the best possible scenario is “the Fed restores control over inflation” with Achieving a so-called “soft landing”, but added: “Unfortunately, the balance of risks is currently skewed in the negative.”
El-Erian also pointed to strong US labor market data as a bright spot in the economy, saying that “it separates us from the specter of a recession right now. This is why a recession remains a potential risk, not a base rule.”
