Mohamed El-Erian: 'The Fed Is Losing Credibility' over Inflation Narrative

Allianz chief economic adviser Mohamed El-Erian on Monday warned of the “implications” of the Federal Reserve’s stance that inflation is transitory.

While speaking with CNBC’s Dan Murphy at the ADIPEC energy industry forum in Abu Dhabi, El-Erian pushed back against the notion that inflation was transitory, predicting it could have a “lasting impact.”

“We are in this transition of central banks mischaracterizing inflation. The repeated narrative: ‘It is transitory, it is transitory, it is transitory.’ It is not transitory,” El-Erian advised.

He continued, “We have ample evidence that there are behavioral changes going on,” El-Erian said. “Companies are charging higher prices [and] there’s more to come. Supply disruptions are lasting for a lot longer than anybody anticipated. Consumers are advancing purchases in order to avoid problems down the road — that, of course, puts pressure on inflation. And then wage behaviors are changing.”

El-Erian later added that the Federal Reserve was losing its “credibility.”

“I think the Fed is losing credibility,” he declared. “I’ve argued that it is really important to reestablish a credible voice on inflation, and this has massive institutional, political and social implications.”

“It is a big issue, and I hope that the Fed will catch up with developments on the ground,” El-Erian concluded.

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