Analysts, economists, and market participants are closely watching inflation levels as investors assess the FederalFederal Reserve’s next move.
But according to University of Cambridge economist Mohamed El-Erian, inflation will reach a “sticky” level of 4% in the middle of the year.
It’s the New 5% 2%: Stricter Monetary Policy and Increases in Interest Rates Incapable of Reducing Inflationary Pressure
Members of the Federal Reserve have regularly emphasized that the bank’s objective is to drive inflation down to 2%, including its 16th chair, Jerome Powell.
The Federal Open Market Committee’s (FOMC) “overarching priority is to bring inflation back down to our 2% goal right now,” Powell has underscored. The central bank has increased interest rates and tightened its monetary policy to control inflation.
Peter Schiff, a gold enthusiast and economist, declared at the time that “America’s days of sub-2% inflation are gone.” JLL CEO Christian Ulbrich told the Financial Times that his peers are beginning to say that 5% will replace 2% at the 2023 World Economic Forum gathering in Davos last week.
El-Erian stated in an opinion piece that was posted on Bloomberg, “Stocks and bonds are off to an optimistic start to 2023, but there is still plenty of uncertainty about the world’s growth, inflation, and policy prospects.”
El-Erian: A Notable Change in Inflation Will Be Caused by “Mounting Wage Pressure”
El-Erian added that this year has seen a considerable surge in the price of bitcoin (BTC), which he attributed to investors’ increased willingness to take risks and their acceptance of looser financial restrictions.
According to the analyst, “Bitcoin is up about 25% so far this year because to looser financial conditions and more risk appetites.”
El-Erian predicts that inflation will remain in the area of 4% even if the Federal Reserve wants to get it back down to the 2% level and some experts believe it will fall to 2.7% this year and 2.3% in 2024.
The economist said that because inflationary pressures are now less responsive to central bank policy action, “this transformation is particularly notable.”
“The outcome could very possibly be more sticky inflation at around twice the level of central banks’ current inflation objective,” the article states.