The Biden administration keeps saying the inflation is transitory but most economists are now saying it is not. Young and middle-aged people have no clue as to what this means. They didn’t live through the Carter era or, if they did, they were too young to realize how awful it was for so many people.
In a recent op-ed in the Financial Times, El-Erian, who is one of the most widely followed economists, said central banks and markets need to “widen their perspective” to avoid significant damage to the economic and financial system.
El-Erian wrote, “It is not often that I take a very strong view that runs directly counter to the market consensus.”
“I WORRY A GREAT DEAL”
“I do worry a great deal, however, about the widespread conviction that the current rise in inflation will be transitory,” he wrote.
El-Erian stated there’s “all the on-the-ground evidence of structural changes in supply at a time when aggregate demand will remain robust.”
“To be clear, I do not expect a return to the inflation of the 1970s. But we have to respect the possibility of a shock to a financial system that has been conditioned and wired for the persistence of lower and more stable inflation,” he said.
El-Erian is president of Queens’ College at Cambridge University. He previously chaired President Barack Obama’s Global Development Council.
After decades of nearly zero inflation in the country, many investors have little idea about two historical dynamics, El-Erian warned.
“First, seemingly one-off increases in prices can cascade through the system,” he said. “Second, a rise in inflation can be persistent, starting with commodities and prices at the factory gate only to end up in consumer prices and wages.”
This would be a real tragedy. Biden was left with a booming economy.
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