After inflation soared to 8.6% in May, top economists and businessmen are sounding the alarm about the economy and warning that a recession could be on the way.
On CBS News’ Face the Nation on Sunday, Mohamed El-Erian, Allianz’s chief economic adviser, warned that inflation in the United States might reach 9%.
When inflation fell to 8.3% in April from an all-time high of 8.5% in March, some people thought it was finally under control. That decreasing trend, on the other hand, turned out to be a blip in a nearly year-long ascent.
El-Erian said on CBS’ Face the Nation, “I never shared those hopes,” adding that experts should adopt a more cautious approach to managing inflation.
“And I fear that it’s still going to get worse,” he added. “We may well get to 9% at this rate.”
Despite the Federal Reserve’s efforts to contain growing prices by changing its benchmark interest rate twice in the last year, once in March and again in May, the inflation rate surged in May.
El-Erian, the president of Queens College in Cambridge and the chief economic advisor of financial services firm Allianz, spoke on CBS about the economy’s current state of play, first outlining the circumstances that have led to the current rise in inflationary pressures, including Russia’s invasion of Ukraine.
“The Federal Reserve mischaracterized inflation and fell behind,” El-Erian said, adding that the Fed didn’t respond soon enough, according to him, the bank’s credibility suffered as a result, as did its ability to easily control the problem.
“You cannot get on top of inflation expectations until you regain credibility,” he said, adding that he expects the Fed to hike its interest rate by another 50 basis points following Federal Open Markets Committee (FOMC) meeting this week.
According to the latest inflation report from the Bureau of Labor Statistics, while housing, airline flights, and used and new vehicles witnessed the largest price increases in May, practically all other products increased in price as well. “It’s making us feel insecure,” El-Erian said of inflation’s current reach.