Economist El-Erian says the Fed has turned into a play-by-play commentator

The
U.S.
Federal
Reserve
has
become
too
data
dependent
and
has
lost
sight
of
its
overall
strategy,
Mohamed
El-Erian,
chief
economic
adviser
at
Allianz,
said
Friday.

The
economist
told
CNBC
that
a
longer-term,
more
strategic
outlook
could
see
policymakers
settle
on
a
new
inflation
target
of
closer
to
3%.

“Rather
than
be
strategic,
this
Fed
is
overly
data
dependent,
and
has
turned
into
a
play-by-play
commentator,”
El-Erian
told
CNBC’s
Steve
Sedgwick
at
the
Ambrosetti
Spring
Forum
in
Italy.

“That’s
not
the
role
of
the
Fed,”
he
continued. “The
Fed
should
be
strategic,
the
Fed
should
provide
a
strategic
anchor,
a
stabilizer.”

“The
mistake
that
they
may
make
is
they’ll
end
up
this
time
being
too
tight,”
he
said.

The
U.S.
Federal
Reserve
did
not
immediately
respond
to
a
CNBC
request
for
comment.

El-Erian’s
comments
follow
a
recent
chorus
of
Fed
policymakers
who
have
begun
speaking
conservatively
about
rate
cuts.

Fed
Chair
Jerome
Powell
said
Wednesday
that
the
Bank
would
need

further
evidence
to
assess
the
current
state
of
inflation,
casting
doubt
on
expectations
for
a
June
interest
rate
cut.

A
day
later,
Minneapolis
Fed
President
Neel
Kashkari
said
he
wondered
if
the
central
bank
should

cut
rates
at
all
if
inflation
remained
sticky,
causing
markets
to
tumble.

El-Erian
said
the
comments
were
an
example
of
the
Fed “overreacting
to
data,”
and
said
that
it
should
take
a
more
holistic
view
of
the
economy.

However,
he
noted
that
policymakers’
hawkish
approach
could
be
an
indication
that
they
are
considering
the
possibility
of
a
new
normal
inflation
target.

“The
way
you
discuss
it
politely
is
you
don’t
say ‘let’s
change
the
inflation
target,’
you
say ‘let’s
get
to
2%
somewhere
in
the
future.
Let’s
have
a
trajectory’,”
El-Erian
said. “It
may
well
prove
that
the
economy
is
stable
nearer
to
3%.
I
don’t
think
that’s
going
to
de-anchor
inflation
expectations,”
he
added.

In
an
effort
to
drag
inflation
back
down
toward
its
target,
the
Fed
has
hiked
interest
rates
11
times
in
total
over
the
last
few
years
to
a
target
range
of
5.25%-5.5%
—
the
highest
level
for
more
than
22
years.