By Tony Czuczka | Bloomberg
Allianz SE’s Mohamed El-Erian said the US inflation rate may increase further and recession risks are “tilted in a negative way right now.”
“I think you’ve got to be very modest about what we know about this inflation process,” El-Erian said on CBS’s “Face the Nation” on Sunday. “And I fear that it’s still going to get worse. We may well get to 9% at this rate.”
The year-on-year increase in US consumer prices unexpectedly accelerated to 8.6% in May, a new 40-year high that’s likely to push the Federal Reserve to extend an aggressive cycle of interest rate hikes.
The Allianz chief economic adviser renewed his criticism that the Fed “fell behind” on inflation and said he expects a hike of 50 basis points at this week’s rate-setting meeting.
“We’re now in a period of stagflation,” El-Erian said, with a risk of persistent inflation that ends up tipping the US economy into recession. The best scenario would be that the Fed “regains control of the inflation narrative” and achieves a so-called soft landing, he said.
“Unfortunately, the balance of risks is tilted in a negative way right now,” El-Erian said.
He cited the strong US labor as a bright spot that’s “keeping us away from a recession right now. That’s why a recession is a risk scenario, not a baseline.”
El-Erian also is president of Queens’ College, Cambridge, and a Bloomberg contributor.