Economist Mohamed A. El-Erian in an exclusive interview on Thursday said that the Federal Reserve was slow to act and may have to maintain its hawkish stance even if financial conditions in the U.S. worsen.
His comments were made during a Twitter Spaces interview hosted by Pensions & Investments Editor-in-Chief Jennifer Ablan.
Mr. El-Erian is president of Queens' College, Cambridge, and chief economic adviser at Allianz, the corporate parent of Pacific Investment Management Co. LLC where he formerly was CEO and co-chief investment officer.
"I was worried last year that the Federal Reserve didn't fully appreciate the inflation dynamics and had fallen in love with the 'transitory' concept," he said. "They were falling behind."
If Mr. El-Erian were at the Fed now, he said he would do three things — maintain the hawkish talk that has been at the forefront of recent public comments from Fed Chairman Jerome H. Powell, work on evolving guidance away from lagging indicators and start to look at creating a new monetary framework.
"The monetary framework that's in place right now that was put in place in 2021 and assumes a world of deficient aggregate demand, whereby we are dealing with a world of deficient aggregate supply," he said. He added that it's important for the Fed to start monitoring non-banks for potential stability risks in order to avoid getting caught like the Bank of England was earlier this week.