El-Erian warns: Fed is feeding ” perfect storm ” for economy

It never rains to everyone’s liking, and some voices have been criticizing the accommodative policies of the US Federal Reserve for several months. The last to join has been Mohammed El-Erian, Allianz adviser and renowned university professor, who has pointed out that the measures that the US central bank has been implementing to remove the country’s economy from the effects of the pandemic could generate a “perfect storm” that not only harms people but increases social inequality.

In an article in The Washington Post , El-Erian argues that the current course of the body led by Jerome Powell may lead to “a combination of high inflation, slowdown growth and financial instability “at the end of this year and the beginning of 2022. “This would have political and social consequences that could further undermine the much-needed economic recovery and expose the most vulnerable segments of our population to further pain. And it would take hold at a time when, due to persistent high inflation, the The Fed would feel obliged to step on the monetary policy brake, aggravating all the elements of this unfortunate mix “, he points out.

In this sense, the also president of Queens’ College establishes five reasons why that the Fed’s initiatives will hurt the economy and Joe Biden’s economic program. First, El-Erian stresses that the central bank is not using the right tools to boost the economy, as fundamental problems are found in the disruption of supply, given the bottlenecks in production, as well as the problems in finding qualified workers and in supply chains.

On the other hand, the professor alludes to the fact that accommodative policies will only achieve further boost inflation to have demand already on the rise, one of the main concerns that many economists come pointing out in recent weeks. Although the Fed affirms that it is a temporary inflation as a result of the economic recovery, scholars such as El-Erian believe that it may be a more sustained circumstance over time that ends up harming the consumer and cooling consumption.

Third, El-Erian states that intervention in the markets is distorting the pricing system , which will reduce productivity and the dynamism of the economy.

At the stock market level, the guru indicates that risk taking is being promoted in the markets , with companies trading well above the value that would be sensible given their accounts.

Finally, El-Erian focuses on the real estate sector, since he considers that the purchase of mortgages by the Fed is overheating prices , which affects the citizen, who will have to pay more to acquire the same property.

To avoid all this, the teacher turns to the proposals of the Biden Administration, defending its tax program. El-Erian believes that it is essential to carry out the infrastructure plan that is still being debated in Congress, so that it contributes to eliminating bottlenecks on the demand side, as well as generating jobs.


1-Business – Wikipedia

What is meant by business?

A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. The term “business” also refers to the organized efforts and activities of individuals to produce and sell goods and services for profit.