Intro: Economist Mohamed El-Erian said Sunday that despite the recent market volatility, the U.S. economy is "on a bumpy journey to a better destination" – unless the U.S. Federal Reserve makes another misstep. . .He said the agency’s first error was to mischaracterize inflation as "transitory," meaning that it would be temporary. Its second blunder, he said, was that it did not act in a meaningful way after inflation remained persistent and high.
"As a result, we risk mistake number three, which is by not easing the foot off the accelerator last year, they are slamming on the breaks this year, which would tip us into recession," El-Erian said.
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Economist Mohamed El-Erian says US economy ‘on bumpy journey to better destination’
El-Erian says markets worried Fed may overreact to good economic news and tip us into recession
"Economist Mohamed El-Erian said Sunday that despite the recent market volatility, the U.S. economy is "on a bumpy journey to a better destination" – unless the U.S. Federal Reserve makes another misstep.
El-Erian, chief economic advisor at Allianz, appeared on CBS's "Face the Nation" to discuss what caused instability in the markets last week.
"The main source of this volatility is changing perceptions of the Federal Reserve," El-Erian said. "We are in this amazing situation … where good news for economy is bad news for the markets."
El-Erian said the markets are worried that the Fed will tip us into a recession by overreacting to strong economic news.
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Mohamed El-Erian, the chief economic adviser of Allianz, said he believes that market volatility is being caused over concern that the U.S. Federal Reserve may overreact to good economic news and tip us into a recession. (Photo by Rob Kim/Getty Images / Getty Images)
"There is a possibility that the Federal Reserve makes another mistake and that that bumpy journey actually changes the destination," the economist said. "That’s why the markets are on edge."
El-Erian said the fed has already made "two big mistakes" that he thinks will "go down in the history books."
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Mohamed El-Erian said he believes the U.S. economy is on "a bumpy journey to a better destination" – that is, unless the Fed changes that destination. (Theo Wargo/Getty Images / Getty Images)
He said the agency’s first error was to mischaracterize inflation as "transitory," meaning that it would be temporary. Its second blunder, he said, was that it did not act in a meaningful way after inflation remained persistent and high.
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"As a result, we risk mistake number three, which is by not easing the foot off the accelerator last year, they are slamming on the breaks this year, which would tip us into recession," El-Erian said."
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