A leading economist and former President Barack Obama’s Global Development Council chair expressed worry about the current state of the U.S. economy.
Mohamed A. El-Erian is currently President of Queens College, Cambridge and the chief economic adviser to the Allianz Group, an international financial services company with more than 150,000 employees and billions under management.
He previously served as CEO of PIMCO, the bond giant with more than $2 trillion under management.
So, he knows a little about economics, and he talked about the current U.S. economy on CNBC’s Thursday broadcast of “Squawk Box.”
“This is an economy that’s weakening at a much faster rate than most people expected,” El-Erian said, referring to the latest GDP data. “Inflation is not going to come down fast enough given how fast the economy is weakening and that’s going to put the Fed in the same dilemma its been in.” A country’s Gross Domestic Product provides a snapshot of its economic condition.
President Joe Biden said the exact opposite in a Thursday statement from the White House. President Biden tried to portray the slowing economy as a natural function of last year’s “historic economic growth” while the Fed tries to tame inflation.
“But, even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure,” Biden said. “Our job market remains historically strong, with unemployment at 3.6 percent and more than 1 million jobs created in the second quarter alone.”
Inflation for the year ending June rose 9.1 percent, according to the U.S. Bureau of Labor Statistics. Its data showed the largest cost increases came from energy products such as gas and oil, as most people know from filling up their gas tanks. That 9.1 percent inflation rate is the highest recorded in the U.S. for forty years.
The Federal Reserve has been raising interest rates over the last few months to slow down an overheating economy stuffed to the gills with stimulus money. The Fed raised interest another .75 percent Wednesday
Higher interest rates could bring down inflation, but such a reduction won’t happen quickly enough due to “how fast the economy is weakening,” El-Erian explained. The Federal Reserve is in a dilemma now about how to handle monetary policy, he added.
“I hope [the Fed] focuses on putting the inflation genie back into the bottle” the economist continued. “I think the worst outcome is that next year, we are in a recession and inflation has proven very sticky.”
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