Analysts and investors are convinced that central-bank tightening will send the US into recession, and Bank of America, among other big Wall Street banks, has warned a downturn could help drag stocks 20% lower.
El-Erian, who has previously criticized the Fed for being sluggish, said in his op-ed that the rate hikes came too late to tame inflation pressures from spreading to wages and the service sector.
“As such, inflation is likely to remain stubborn at around 4 per cent, be less sensitive to interest rate policies and expose the economy to a higher risk of accidents induced by additional policy mistakes undermining growth,” he said.
The economist warned against being too complacent about the forces behind the coming economic downturn.
“The uncertainties facing each of these three economic areas suggest that analysts should be more cautious in assuring us that recessionary pressures will just be ‘short and shallow,'” El-Erian said.
“They should keep an open mind, if only to avoid repeating the mistake of prematurely dismissing inflation as transitory,” he added.
