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The Fed fell into a 'cognitive trap': Mohamed El-Erian

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Mohamed El-Erian, Allianz SE Chief Economic Adviser & former PIMCO CEO, joins 'Influencers with Andy Serwer' to discuss the Fed's actions in response to rising inflation.

Video Transcript

ANDY SERWER: You've been critical of the Fed in a high profile way. And so what do you think of their moves to raise rates and combat inflation? I mean, how did they get it wrong? Why did they get it wrong? How wrong has it been?

MOHAMED EL-ERIAN: So they started getting it wrong 15 months ago when they absolutely embraced the notion of transitory when it was an open question. Had they listened to companies, they would have been much more humble in saying we don't quite understand the inflation dynamics because companies themselves were warning that the supply disruptions they were seeing-- and we know the list-- supply chains, container ships. What companies were seeing, what they were warning, saying, we're not sure they're going to resolve themselves quickly.

And yet the Fed got hooked on this notion it's transitory. And then it got itself into a cognitive trap. It kept on repeating it and repeating it and repeating it, all the way, as you know, 'til the very last day of November, by which time it was clear that inflation was a problem. And then we tied it, but didn't move. It could have done more at that stage.

And you ended up with this absurd situation that in March, it was still pumping in liquidity. It was still doing QE in March when the inflation rate measuring for February with a month lag was already at a 7% handle. So it is bad analysis, bad forecast, too little too late, and miscommunication. And that's how we've ended up in this mess.