Mohamed El-Erian, a closely followed bond-market strategist, says the Federal Reserve has a trust problem with financial markets and the nation over inflation.
"It has a credibility issue with the American people and that is why chair (Jerome) Powell chose to address the American people at the beginning of his press conference" on Wednesday, the chair of Gramercy Fund Management and former chief executive officer of PIMCO, said on Bloomberg Television's The Open on Friday. "It increasingly has a problem with the marketplace."
El-Erian, a Bloomberg Opinion columnist, added that "it is essential that the Fed regain credibility. It will not do so until it does what the ECB did last week, tell us why the inflation forecasts were so wrong for so long and how to improve the inflation methodology."
In July, El-Erian predicted that inflation, at the time running at a 5.4% annualized pace, wouldn't be as transitory as the central bank was projecting. U.S. headline inflation as measured by the Consumer Price Index is now at 8.5%.
His critique on Friday touched as well on Powell, who said Wednesday that a 75-basis-point hike is not being "actively" considered. The Fed since 2020 kept rates as low as zero in response to shutdowns in the economy that happened as the pandemic surged.
