via CNBC
Summary:
- Mohamed El-Erian, speaking with CNBC said he does not expect the fed to discuss changes to the 2% inflation target at Jackson Hole later this week, given that recently it has consistently missed the target.
- El-Erian also does not expect China to stimulate its economy despite weak economic growth, because China also has a “debt problem.”
- El-Erian does not expect deflation in China to significantly help bring down US inflation because inflation in the US is primarily in the services sector and driven by a strong labor market.
Full Synopsis
Speaking with CNBC’s Squad on the Street, Mohamed El-Erian discussed the likelihood that the fed will adjust the 2% inflation target, economic weakness in China, and the impact on inflation in the us.
Despite a number of commentators that have argued the 2% inflation target should be revised higher, El-Erian doesn’t expect the fed to discuss changing the target and expects the fed to maintain its 2% target. El-Erian acknowledged there is a strong theoretical argument for a higher inflation target. However, El Brian believes that it would be difficult for the fed to adjust its target “when it has missed it so consistently,” undermining the fed’s credibility. Speaking about the fed’s upcoming Jackson Hole conference, El-Erian expects the fed chair Jerome Powell to focus on short term monetary issues and to leave aside larger structural economic topics.
Speaking about the slow economic growth reported in China – El-Erian explained that “China has both a growth and a debt problem.” Although some commentators have speculated that China will begin to stimulate its economy, El-Erian explained that he doesn’t expect strong stimulus from China because of the debt problem.
Speaking about whether disinflation in China will help to bring down inflation in the U.S., El-Erian was skeptical. El-Erian pointed out that the inflation in the US is primarily driven by the services sector rather than the goods sector, implying that cheaper goods from China may not alleviate services inflation driven by a tight labor market in the U.S. Economic weakness in China may therefore may both be a drag on the global economy and do little to help high inflation rates.
