Economist Mohamed El-Erian predicts ‘sticky’ inflation despite Federal Reserve efforts to lower it – Bitcoin News

Analysts, economists and market participants are also closely watching inflation levels as investors examine the Federal Reserve’s next move. In December 2022, the annual inflation rate fell to 6.5%, and many experts predict that it will decrease further. However, Cambridge University economist Mohamed El-Erian thinks inflation will be “sticky” around 4% in the middle of the year. The central bank is primarily focused on reducing inflation to 2%.

5% is new 2%: Tight monetary policy and interest rate hikes fail to curb inflationary pressure

Members of the Federal Reserve, including its 16th chairman, Jerome Powell, often state that the bank’s goal is to keep inflation below 2%. Powell stressed that the Federal Open Market Committee’s (FOMC) “focus right now is on reducing inflation to our 2% target.” To tame inflation, the central bank used a policy of monetary tightening and raising interest rates. So far, the Fed has raised interest rates seven times in a row since last year, and the hikes are occurring monthly.

U.S. inflation eased after hovering near double digits in October and November 2022. At the time, economist and gold enthusiast Peter Schiff said, “America’s days of sub-2% inflation are over.” At the World Economic Forum 2023 event in Davos last week, JLL CEO Christian Ulbricht told the Financial Times that his peers are starting to say that 5% will become the new 2%. “Inflation will remain permanently around 5%,” Ulbrich told FT reporters. Mohamed El-Erian, president of Queens College, University of Cambridge, explained on January 17 that inflation could be “sticky” around the 4% range.

“Stocks and bonds are off to a buoyant start to 2023, but there is still a lot of uncertainty about the outlook for global growth, inflation and policy,” El-Erian wrote in a Bloomberg article. “The improvement in US growth prospects is accompanied by a drain on savings and an increase in debt, which benefited from significant financial transfers to households during the pandemic,” the economist said.

El-Erian: “Increasing wage pressure” will lead to significant changes in inflation

El-Erian further noted that the value of bitcoin (BTC) has risen significantly this year, which he attributes to investors’ greater acceptance of comfortable financial constraints and increased risk-taking attitudes. “Bitcoin is up about 25% so far this year thanks to weaker financial conditions and greater risk appetite,” the economist said.

While the Federal Reserve aims to bring inflation back down to the 2% range, and some predict inflation will fall to 2.7% this year and 2.3% in 2024, El-Erian expects to be stuck around the 4% range. El-Erian emphasized that “increasing wage pressure” is driving this change.

“This shift is particularly notable because inflationary pressures are now less sensitive to central bank policy action,” the economist said. “The result could be stickier inflation at around twice the central banks’ current inflation target.”

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Bitcoin, Central Bank, Christian Ulbrich, economic growth, economy, Economist, Federal Reserve, financial conditions, financial constraints, FOMC, debt, inflation, inflation forecast, inflation rate, inflation targeting, inflation expectations, inflation pressure, inflation outlook, inflation trend , interest rate hikes, Investors, Jerome Powell, JLL, Mohamed El-Erian, Monetary Policy, Monetary Tightening, Peter Schiff, Queens’ College, risk appetite, risk taking, Savings, Cambridge University, wage pressure

Will inflation be “sticky” around 4%, as economist El-Erian said? Share your thoughts in the comments below.

Jamie Redman

Jamie Redman is Head of News at News and a fintech journalist based in Florida. Redman has been an active member of the cryptocurrency community since 2011. He is passionate about Bitcoin, open source code and decentralized applications. Since September 2015, Redman has written more than 6,000 articles for News about disruptive protocols emerging today.

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