Mohamed A. El-Erian , Columnist

What Now for a Fed That Has Fallen Behind the Curve Again?

The central bank downshifted rate increases too early and now faces a set of dilemmas and another knock to its credibility.

March 2, 2023 at 10:00 AM UTC

Corrected

March 2, 2023 at 2:13 PM UTC

By Mohamed A. El-Erian

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

The central bank's standing may take a hit no matter what it does next.
Photographer: Julia Nikhinson/Getty Images

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With several hotter-than-expected inflation numbers coming after two successive downshifts in interest-rate increases, an interesting debate is raging as to what the Federal Reserve should do next: Go back to a larger rate increase (50 basis points) or maintain a slower pace (25 basis points) but keep higher rates for longer.

Already an analytically tricky issue, this has become even more complicated by the Fed now falling behind on its inflation fight for the third time in just two years and what that implies for its already damaged credibility.