“I’m concerned that this wonderful world we live in with low volatility and high yields could end with even greater instability,” El-Erian said.
Investors should be prepared for increased market volatility if the Fed withdraws stimulus measures for the pandemic, warns Alianz economist and financial adviser Mohamed El-Erian .
“I’m concerned that this wonderful world we live in with low volatility and high yields could end with even greater instability,” El-Erian told Fox News.
He also estimated that inflation will be high in 2022, at least.
He reiterated that investors need to come to terms with the fact that the economic recovery will take longer to consolidate.
He noted liquidity injections “prove to be less powerful” to overcome a weak economic recovery and there are no “easy ways” to protect portfolios from large fluctuations in stock prices.
Gold and government bonds, traditionally considered safe assets, have offered little protection to diversified investors, he said.
Criticism of the Fed
His criticism was once again at the center of the Fed, which he criticized for underestimating inflation and thus risking the US entering a recession.
“I have concerns about the history of inflation,” he said.
“Every day I see evidence that inflation is not temporary, and I’m worried that the Fed is making wrong estimates.
“If the central bank falls into this position, it may need to raise interest rates and otherwise strengthen monetary policy sooner than it would like.
“Normally, we end up in a recession because you have to hit the brakes as opposed to slowly getting your foot out of the accelerator, which we believe will happen,” El-Erian said.