• Economist Mohamed El-Erian predicts that inflation will become “sticky” at around 4% despite the Federal Reserve’s efforts to bring it down to 2%.
• The Federal Reserve has implemented its monetary tightening policy and interest rate hikes in order to reduce inflation, but the rate has only dropped to 6.5%.
• JLL CEO Christian Ulbrich suggested at the 2023 World Economic Forum event in Davos that 5% will be the new 2% when it comes to inflation.
Despite the Federal Reserve’s efforts to decrease inflation to 2%, economist Mohamed El-Erian of the University of Cambridge believes it will become “sticky” at around 4% in midyear. The central bank has implemented its monetary tightening policy and interest rate hikes to try to reduce inflation in the U.S., but so far the annual rate has only dropped to 6.5%.
In October and November 2022, inflation in the U.S. approached double digits, and economist and gold enthusiast Peter Schiff stated that „America’s days of sub-2% inflation are gone.“ This sentiment was echoed at the 2023 World Economic Forum event in Davos, where JLL CEO Christian Ulbrich told the Financial Times that his peers are starting to say that 5% will be the new 2%.
Despite this, the Federal Reserve is still focused on bringing inflation down to its target of 2%. 16th chair of the Fed, Jerome Powell, has repeatedly emphasized that the bank’s „overarching focus right now is to bring inflation back down to our 2% goal.“ The Fed has raised rates seven times in a row since last year, but this has not been enough to curb inflationary pressure.
El-Erian’s prediction of 4% inflation is a reality that many investors and market participants must face. If this prediction comes true, then it will be a testament to the Fed’s failure to meet its inflation target, and the consequences of this could be far-reaching.