According to Chief Economic Advisor of Allianz, Mohamed El-Erian, the Economy of the United States of America is heading towards an avoidable recession. An increase in international oil prices and a crisis in the global supply chain triggered high inflation and economic crisis all over the world.
The economy of the United States of America witnessed very high inflation rates which were the highest in the past 40 years.
Mohamed El-Erian was talking on a CBS news show named “Face the Nation” when he told the moderators that he fear a very high risk of a highly damaging recession in the US economy which was avoidable. He also stated that the Federal Reserve of the United States of America committed so many mistakes which will go down in the history book of the US Economic history.
High inflation rates in the domestic economy and continuing volatility in the country’s capital markets had forced US Federal Reserve to hike benchmark interest multiple times. Hiking interest rates helps central banks to reduce cash flow in the economy which in turn will possibly bring down high inflation rates.
According to Mohamed El-Erian, the Federal Reserve of the United States committed major mistakes. The first mistake committed by Federal Reserve was to consider the ongoing inflation and transitory. They believed that it was temporary and it will go away automatically without any monetary policy intervention in the US Economy. The second mistake was that US Federal Reserve later found out the Inflation was persistent and high, and then they began taking strict monetary policy actions to bring the commodity prices under the control.
The aggressive interest rate policy followed by the Federal Reserve has pushed the economy of the United States to the brink of a major recession which will leave millions of people homeless and jobless. Despite having a minor decrease in Inflation rates across various sectors in the country, US Federal Reserve is determined to continue its aggressive rate hike policy. Federal Reserve Chief Jerome Powell stated a few weeks ago that the bank will do whatever it takes to bring down inflation rates under the benchmark level of 2% which is set by the central bank itself.
Mohamed El-Erian said that US Federal Reserve was late to act on the inflation and that they not only have to bring the economy back to normal but also build their credibility which is now lost due to late actions which hurt the economy in a bad manner.