Economist Mohamed El-Erian has warned that a third wave of inflationary pressures is building and will be “unleashed” if the Federal Reserve doesn’t act quickly.
El-Erian, the former CEO of American investment management firm Pimco, made the comments on social media on July 13, shortly after financial markets were shocked by the U.S. annual inflation rate rising to 9.1 percent in June, marking its highest level since November 1981.
Economists had forecast that inflation would come in at 8.8 percent in June.
“Looking forward, inflation will come down over the next couple of months. That’s the good news,” El-Erian said on Wednesday.
However, the expert noted that a “third wave of inflationary pressures”—the underlying causes of inflation—is building, and “will be unleashed if the Fed doesn’t get its act together quickly.”
“With the first best policy option now long gone due to the first two stages of the ongoing Fed policy mistake, the recession risks are increasing accordingly,” El-Erian said.
The economist added that this means that households, particularly those in the most vulnerable segments of society, are likely to take a second “big hit,” adding that he believes “much of this could have been avoided.”
Federal Reserve officials in mid-June raised the benchmark interest rate by 0.75 percentage points, and were widely expected to raise rates by another 0.75 percentage points this month as inflation continues to soar.
However, after Wednesday’s headline reading, experts have now increased the odds of a 100-basis-point rate hike at the Fed’s next policy meeting to 77 percent.
According to data released by the Bureau of Labor Statistics (BLS) on July 13, the cost of rent, food, energy, and medical care all rose in June.
Food prices soared 10.4 percent for the 12 months ending June, marking the largest 12-month increase since the period ending February 1981, while the energy index advanced by 41.6 percent.