Written by Economist Mohamed El-Erian argued for more reforms at the Federal Reserve, which he said “went to sleep” on the inflation issue.
“There are many best practices from the rest of the world that we should be looking at more seriously,” El-Erian stated. “And there’s lots of hard questions that we need to ask, including, what is the right inflation target in a structurally changing economy?”
El-Erian’s comments come as the Federal Reserve remains divided on the issue of inflation and whether the softening labor market is becoming a bigger risk to the US economy. Currently, at least three Fed officials, including Bowman, have expressed interest in instituting a range for the Fed’s inflation target instead of the hard 2% target.
One way El-Erian sees change happening at the central bank is through President Trump’s decision on the next Fed Chair, who will replace Jerome Powell in May.
El-Erian was encouraged that the shortlist of candidates — former Fed governor Kevin Warsh, National Economic Council Director Kevin Hassett, current Fed governor Chris Waller, Fed governor Michelle Bowman, and BlackRock fixed-income chief investment officer Rick Rieder — seem open to reform.
“I think it’s really important to reform this Fed, and what this political pressure has done is it has made certain federal officials realize that it’s better to reform from the inside than to have it imposed on you,” El-Erian said.
