El-Erian says criticising the Fed when it missteps is essential. . .
The story of the Federal Reserve's efforts to rein in inflation is still being written. But Mohamed El-Erian, chief economic advisor at Allianz and chair of Gramercy Funds Management, says it's not too early to critique the job the central bank has done thus far.
In fact, El-Erian says criticising the Fed when it missteps is essential.
"Without accountability you don't get politically independent central banks. So that is why I have been unusually critical — because this Fed has made mistakes," El-Erian told Barron's Andy Serwer in an interview conducted on April 12 at a conference in South Carolina.
In that conversation, El-Erian laid out three reasons why he believes it's not too early to criticise the Fed:
1 Inflation wasn't transitory
The economist says the Fed's first mistake was misjudging the nature of the inflation that took hold during the Covid-19 reopening.
"We know that the transitory inflation call was false," El-Erian said. "Transitory means not only short term, but it means people don't change behaviours — they believe it's temporary and it's reversible. And people did change behaviours."
2 Poor communication
El-Erian pointed to market volatility during Fed press conferences as evidence the Central Bank's message hasn't been consistent. In fact, markets have been three times more volatile during chairman Jerome Powell's conferences compared with his predecessors.
3 Not owning its mistakes
The Fed is the only major central bank that hasn't publicly explained why it misread inflation and why it waited too long to start countering it, says El-Erian. "The European Central Bank has done that, the Bank of England has done that."
So although the ultimate outcome of the Fed's actions remains uncertain, the Fed shouldn't be off the hook, he said.
"It doesn't mean we should not hope that they can land perfectly. I sure hope so, because it's a lot at stake," he said. "But I fear that it's unlikely that they will."
Write to Stevie Rosignol-Cortez at stevie.rosignol-cortez@dowjones.com
This article was published by Barron's, part of Dow Jones
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