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00:00You've been banging on you know banging the drum about the Fed being too late. Is it a recession at this point now unavoidable in the U.S.. It is not unavoidable but unfortunate probability is going up. What is unavoidable is stagflation and we seeing growth coming down and we're seeing inflation remaining high. And the Fed is finally catching up to developments on the ground but it still has some way to go. If you look at stagflation what does that mean for stocks. How much of it is already priced in or how much more volatility will we get. So we've gone sequentially through pricing in inflation risk and interest rate risk to pricing in tighter liquidity. What we haven't priced in yet is a significant slowdown in growth. So we are mostly seeing adjustment but not quite there yet. I think that's probably another leg to come. Well what does this mean for the US consumer. They're not strong enough to withstand this for a couple of quarters. So the consumer in general is they still have significant savings that were built up during the pandemic with all the transfers from the fiscal side. But the issue Francine is distribution. There are very vulnerable segments of the population. And so far we haven't seen enough being done to protect them. Yeah stagflation is also I guess every central bank's worst nightmare when you look at the situation in Japan. I mean they were stuck in this for a long time. Is the US or the world becoming more like Japan or is it a you know stagflation a transitory stagflation environment. So that is really hard to predict at this type of stagflation is the worst thing for central banks especially for the Fed because it puts its two objectives in conflict with each other. And that's why a lot of us wanted to avoid the situation. And this situation was avoidable. That's what what sort of upsets a lot of us. It was avoidable had the Fed not stuck to its transitory inflation characterization. Now that we hear it is very hard to find a first best policy outcome. So the Fed is going to have to make a very difficult choice. I mean a lot of people say it needs luck and skill. Well it needs a lot of luck at this point.

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El-Erian Says US Stagflation Is ‘Unavoidable’

Mohamed El-Erian, chief economic advisor at Allianz and Bloomberg Opinion columnist, says markets have not yet priced in a significant slowdown in growth as he sees stagflation “unavoidable” for the US economy. He speaks with Francine Lacqua on “Bloomberg Surveillance Early Edition.” His opinions are his own. (Source: Bloomberg)

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