The Federal Reserve's delay of interest-rate cuts in a bid to temper inflation runs the risk of falling behind the curve, according to Mohamed El-Erian.
"The Fed pivoted on the basis of data. It was the opposite of the pivot that they did in December — now they have to do a U-turn," El-Erian, the president of Queens' College, Cambridge, told Bloomberg Television on Friday. "As they are doing the U-turn and stay higher for longer, the market is going the other way."
![“The Fed is going to have to pivot — not on the basis of inflation numbers, but the basis of the real economy,” Mohamed El-Erian said.](https://arizent.brightspotcdn.com/dims4/default/d52dd97/2147483647/strip/true/crop/3725x2330+0+0/resize/740x463!/quality/90/?url=https%3A%2F%2Fsource-media-brightspot.s3.us-east-1.amazonaws.com%2F26%2F50%2F2d554ed548388b2e810215411877%2Fel-erian-mohamed-bl-102023.jpg)
"The Fed is going to have to pivot — not on the basis of inflation numbers, but the basis of the real economy," he added.
Like other market watchers, El-Erian has previously raised the possibility that the U.S. central bank should look beyond its 2% inflation target in a new era of structurally higher pressures on price growth.
"Is the inflation target the right target? We all talk about wanting to go back to 2%," El-Erian said. "Two percent is totally arbitrary. If we are pursuing the wrong inflation target, the risk of a mistake — that mistake would mean sacrificing growth unnecessarily — the risk of a mistake is high."
"It's a world that's subjected to higher inflation. And we've come from a world that was subject to lower inflation," he added.
On Wednesday, Treasuries rallied after a reading of consumer prices showed that headline growth eased in April, with investors bolstering wagers that the Fed will ease by as many as two quarter-point cuts come December. But inflation reports have also illustrated that for some areas of the service economy price growth is proving harder to tame.