Central Banks

El-Erian, Rogoff Say It’s Too Late to Fix Too-Low Inflation Target

They both see higher US interest rates for some time to come
‘Higher real rates mean lower asset prices,’ says Rogoff

Mohamed El-Erian, chief economic adviser at Allianz and Bloomberg Opinion columnist, says a US economic downturn is a “possibility, but not a 100% probability” despite the Federal Reserve’s efforts to meet its “arbitrary” 2% inflation target. “We can avert a recession. And the last few weeks of data suggest that we can still avert a recession,” he says on “Blomberg The Open.”Source: Bloomberg

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By John McCorry, Tom Keene, and Jonathan Ferro

February 14, 2023 at 7:11 PM UTC

This article is for subscribers only.

Wall Street’s reaction to Tuesday’s consumer-price index shows investors are realizing inflation is likely to remain higher than the Federal Reserve’s goal for longer. Two heavyweight market voices say the 2% target is part of the problem.

“Back in the day, they should’ve said 3% instead of 2%,” Kenneth Rogoff, a professor at Harvard University and former Fed economist, told Bloomberg Television Tuesday. “If you change it, it means you might change it again. Inflation they’re going to allow to be elevated for longer but they’re going to say it’s going to get back to 2%, it’s just taking longer. That will be the rhetoric.”