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According to Mohamed El-Erian, a famous economist, the Federal Reserve should have been more clear about its plans to combat rising inflation at its first policy meeting.
After a two-day meeting, the Fed's Chair Jerome Powell indicated Wednesday that it would raise US interest rates in March. It also stated it intended to end its asset-purchasing program.
El Erian is the chief economic advisor of Allianz parent PIMCO. He said that tapering should have been done sooner and that the central bank had to better communicate its intentions regarding interest rates.
El Erian stated in a Bloomberg Opinion piece that "it should have stopped buying assets immediately and given clearer signals on rate rises."
Separately, El Erian stated to CNBC that the Fed missed a "golden chance" to communicate its intentions to markets and "catch-up with reality on the ground."
"It's what i expected, but not what i think they should have done." He stated on Twitter that Fed has fallen further behind economic development.
Powell was hawkish in answering questions but did not outline a clear plan. Powell refused to rule out possible hikes at any Fed meeting this year, seven total, and the possibility of a 50-basis point rate rise at some point.
Powell stated that Powell believes there is a lot of room for interest rates to be raised without threatening the labor markets.
He stressed that policymakers hadn't yet "made these choices".
At the moment, inflation is at its highest point in 40 years. This is due to a bounce-back economy from the pandemic and a labor shortage. Also, disruptions from supply-chain bottlenecks continue to wreak havoc on consumer prices.
The Fed's ultra-loose monetary policy over the past two decades has led to asset prices rising. Investors in those markets that have benefited the most from it, such as stocks and crypto, are now worried about tightening.
El Erian stated in the Bloomberg opinion piece, that the central bank tried to please financial markets "at the cost of increasing economic challenges ahead for sound policy making and its own credibility."
He tweeted, "Last thing that you'd expect is no Fed Action," shortly after.
El Erian stated to CNCB that Powell needs answers. He said: "Does it want Powell to be more dovish? Or do they want more clarity?" It's likely the former.
He stated that the markets recognize that liquidity is changing, but not how it is changing. This will cause significant volatility.
He said, "Volatility has arrived and will remain."
Separately, he stated on Twitter that the market was focusing more on what the Fed didn't announce today than on what it did.
After Powell's press conference on Thursday, US stock futures fell to negative territory as equity investors sold stocks that could lag if rates rise.