Chief economic adviser at Allianz Mohamed El-Erian has said that the Federal Reserve is underestimating the inflation pressures and risking another recession.
"I have concerns about the inflation story," he told CNBC in an interview. "Every day I see evidence of inflation not being transitory, and I have concern that the Fed is falling behind and that it may have to play catch-up, and history makes you very uncomfortable if you end up in a world in which the Fed has to play catch-up."
Federal Reserve Chair Jerome Powell had earlier responded to concerns from Republican lawmakers about spiking inflation by reiterating his view that the current price increase would likely prove temporary.
Recent price gains mostly reflected temporary supply bottlenecks and the fact that prices fell sharply last spring at the onset of the pandemic, which make inflation figures now, compared with a year ago, look much larger, he said.
Consumer prices also jumped 5 percent in May compared with a year earlier, the largest increase in 13 years.
According to the National Bureau of Economic Research, the official economic arbiter, the US economy entered recession in February 2020. El-Erain added that "we end up with a recession because you have to slam on the brakes as opposed to slowly taking your foot off the accelerator, which is what (we) believe is going to happen". Looking at the inflation numbers, one would "start having serious doubts in your mind as to how transitory inflation is", he said.
Fed officials had also signalled that they may increase the central bank's benchmark interest rate twice in 2023, an earlier time frame than they set in March when no rate hike was expected until after that year. Changes to the Fed's benchmark rate affect a wide range of consumer borrowing costs, such as mortgages, credit cards, and student loans.
(Inputs from AP)