According to El-Erian, the US economy can possibly dodge a recession, but it is going to suffer from deflation.
He said that a recession is not unavoidable but that it is likely to get worse. Growth is coming down and inflation is high.
The famed economist, who is an adviser to Allianz and chairman at Gramercy Fund Management, said that the stock market has priced in the risks of inflation, higher interest rates and tighter liquidity.
He expects another leg to come even though a significant slowdown in economic growth hasn't been priced into markets yet.
El-Erian said that consumers can rely on built-up savings from pandemic aid to survive the changing economic environment. Not enough has been done to protect vulnerable segments of the population.
He said that the Federal Reserve was too slow in reacting to inflation. While the central bank is turning the corner and recognizing the potential ramifications of its policies, it still has some way to go.
Powell told the Wall Street Journal that he would continue raising interest rates until inflation comes down.
There are a number of plausible paths to have a soft landing. Powell said that their job is to try to achieve that.
Stagflation is the worst nightmare for the Fed as it puts full employment and stable prices into conflict, according to El-Erian. He thinks Powell and the Fed have a difficult decision to make in regards to controlling inflation.
A lot of people think it needs luck and skill. El-Erian said it needs a lot of luck.
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