Taps Coogan – June 5th, 2021

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Mohamed El-Erian, Allianz chief economic advisor, recently spoke with CNBC to issue his most unambiguous warning to the Fed that it needs to start tightening policy before it is forced to play catch up, all but guaranteeing a recession.

 

Some excerpts from Mr. El-Erian:

“What I am seeing suggests (inflation) is not simply transitory and the last thing we need is for the Fed to slam on the brakes further down the road. We have no historical experience where the Fed has been late and we haven’t ended up in a recession… So hopefully the Fed will respond on a timely basis…”

“Let’s ease off the accelerator. We have so many accelerators on right now. We have the fiscal accelerator all the way peddle to the metal. We have the monetary accelerator all the way peddle to the metal and we have the private sector credit creation, margin debt, all the way there…” 

“Running the economy hot to simply deal with this (economic inequality) has massive risks elsewhere…”

Indeed, every single major recession and multi-year bear market since at least the 1920s has been proceeded by the Fed playing catch up with inflation. 

In fact, it is such a consistent pattern that you might think it would be an objective of monetary policy to avoid inflating asset and debt bubbles in the first place. Of course, you would be wrong. The Fed’s plan is to simply ignore inflation until it can’t be ignored any further. 

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