The U.S. is in a period of stagflation leaning toward recession, Allianz SE CEO Mohamed El-Erian said Sunday.
Recession risks are “tilted in a negative way right now,” El-Erian said on CBS’s Face the Nation, Bloomberg reported.
“I think you’ve got to be very modest about what we know about this inflation process,” he said. “And I fear that it’s still going to get worse. We may well get to 9% at this rate.”
In May, U.S. consumer prices were 8.6% higher than the year before, hitting a 40-year high.
El-Erian said the Fed “fell behind” on inflation and that he expects to see a 50 basis points hike at this week’s rate-setting meeting. The Federal Open Market Committee is set to meet Tuesday and Wednesday of this week.
El Erian said that the U.S. is “in a period of stagflation,” but that a strong labor market was warding off recession.
“That’s why a recession is a risk scenario, not a baseline,” he added.
What is stagflation?
It’s a combination of economic stagnation and high inflation, with the added struggle of increased unemployment, Veronika Dolar, an economist at State University of New York at Old Westbury and visiting professor at Stony Brook University in New York City, told The Conversation.
Typically, economists focus on “three big macroeconomic variables,” she said: gross domestic product, unemployment, and inflation.
“Each measure tells its own important story about how the economy is doing,” Dolar said. “GDP—or the total output of all goods and services produced—shows us what the broader economy is doing, unemployment tells us about the job situation, and inflation measures the movement of prices.”
She continued: “But their stories also overlap. And unfortunately, they usually don’t all tell us good news at the same time.”
It’s not uncommon to see a strong GDP with low unemployment counterbalanced by higher inflation—or lower inflation with lower GDP and, perhaps, higher unemployment, Dolar added.
“So, normally there is some good news and some bad news. But with stagflation, there is no good news,” she said.
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