The main reason Mr. El-Erian said he doesn't expect a recession is cross-currents in the American labor market. Job openings now vastly outnumber the unemployed, he said, adding that "for every one unemployed person, there are 1.9 jobs open."
While he admits there's "a possibility of a recession, it's nowhere near 100% or 80% some people claim."
He forecasts "anemic" U.S. economic growth, and by mid-2023, "we see inflation stuck at 4%. The reason why is because inflation has migrated. That's the cost of the Fed being late" in raising interest rates.
Inflation is changing as prices of food and energy fall, and price hikes migrate to the services sector.
"It's a very important change. Goods have disinflated. But services are less sensitive to monetary policy, especially higher wages, which are stickier" in the services sector.
"So I suspect we get stuck at 4% inflation," Mr. El-Erian said. The Fed's 2% inflation target is "arbitrary."
What role might China's economy reopening play in global inflation?
Mr. El-Erian said some investors, such as the head of Norway's sovereign wealth fund, believe global inflation will resurface in the second half of this year because of China's reopening.
"I'm not there," he said of that scenario.
Another puzzle: What are the tightening financial conditions Mr. Powell is watching and referring to in his latest testimony?
"It's a head scratcher. People can't figure it out. One interpretation is that he has moved to a very narrow concept of inflation such as core services excluding housing. It's a puzzle."
A full recording of Mr. El-Erian's interview is available on Twitter Spaces.