On Monday’s broadcast of CNBC’s “Squawk Box,” economist and President of Queens’ College Dr. Mohamed El-Erian stated that inflation has now migrated into areas of the economy that are not as sensitive to the Federal Reserve’s interest rate hikes and so the rates will have to be higher and for longer.
El-Erian said, “I’ve been saying this for a while, that if you look at how inflation has migrated from a few goods — food and energy — out to the whole goods complex and now to the service complex, and we’re starting to see it in wages, people should follow the Atlanta Fed wage tracker, that’s up around 6%. So, if you look at what has happened to the inflation dynamics, it’s now embedded in the service sector, and it’s starting to impact wages. And that’s what happens when the Fed is late. That’s what has happened in past episode[s], is that inflation goes from things that are interest rate-sensitive to things that are less interest rate-sensitive.”
Co-host Becky Quick then asked, “Meaning even if they hike rates further, it’s not going to have that much impact?”
El-Erian answered, “You need to go higher and for longer, and therefore, you incur two risks that we’ve talked about: one is to the real economy and the other one is to the financial system.”
Follow Ian Hanchett on Twitter @IanHanchett
COMMENTS
Please let us know if you're having issues with commenting.