In an interview with CNBC on Monday, economist Mohamed El-Erian examined the US economy, markets, and the Federal Reserve’s approach to inflation.
El-Erian is the president of Cambridge University’s Queens’ College. He is also the Chief Economic Advisor of Allianz, the corporate parent of PIMCO, one of the world’s largest investment managers, where he previously served as CEO and co-chief investment officer.
“I think the markets have understood that we have three issues. One is high, persistent inflation is with us. Two, the Fed is way behind, and three, the pathway for orderly disinflation is pretty narrow.”
According to the economist, corporations are increasingly concerned about their ability to grow as a result of these reasons. He mentioned that Goldman Sachs released a report on Monday predicting a 35% chance of a recession in the next two years. “That’s a significant figure, 35 percent,” El-Erian emphasized.
“So, the big question is: can we navigate this inflation growth landscape that has become much more difficult?” he noted, adding that “Bank CEOs, they are worried about the macro environment.”
Following the weekend selloff in various major cryptocurrencies, including bitcoin, the Allianz top economic advisor was asked about the long-term forecast for the crypto sector.
“I think the concern for the crypto people is that this decline is happening at a time when gold is up and hitting almost $2,000,” he opined. “Because the big argument for crypto is it’s a diversifier. At the time of inflation, it’s attractive. And recently, crypto hasn’t played that role.”
The economist explained: “There’s a reason why, and that’s because crypto, unlike gold, benefited enormously from all the liquidity injections. So what you’re getting in crypto is a tug of war between a recognition that liquidity is going out from the system as a whole and attractiveness as a diversifier. So far, it’s the liquidity element that is winning out.”
He went on to say,“What you are seeing across the board is the restoration of value, and that’s a good thing. You’re seeing it in stocks, you’re seeing it in bonds, you’re seeing it in crypto.”
“We are just adjusting to a paradigm in which liquidity is no longer abundant, and is no longer predictable,” he added.
El-Erian reiterated: “So I view this as part of the restoration of value that we are seeing in quite a few assets, not all of them yet, but quite a few already.”