Mohamed El-Erian: 2% is the wrong inflation target

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잭슨홀 앞두고 파월은 정책 선택지를 유지할 가능성이 크나, 엘-에리안은 노동시장 연착륙 위험과 후행적 데이터 의존을 우려하며 9월 인하를 주장. 실업률 4.2%는 안정적이나 대졸 고용 등 다른 지표는 둔화 가속. 9월 인하 폭은 25bp 제시, 악화 시 50bp 가능성 언급. 인플레이션 목표 2%는 현실에 맞지 않는다며 재검토 필요 주장(파월은 프레임워크에서 목표 재검토 배제).

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01. All eyes on Jackson Hole, starting tomorrow as the Fed begins its annual gathering. Fed chair Powell speaking on Friday with no one quite certain what he'll say about the road ahead for rate cuts. Here with some insight is Mohamed El-Erian. He's Allianz's chief economic advisor with me here on set. It's good to see you.

02. Thanks for having me. You think you know what he might do this week or say? I don't. I think he would be inclined to maintain maximum policy optionality, and that's not what the White House wants to hear. That's not what many people in the market want to hear. He's also going to be pushed on the labor market.

03. That's the topic of the of the symposium. And then finally, and something that we don't talk enough about is the monetary framework. This is when he unveils the monetary framework. Do Do you think that it would be a mistake to maintain this optionality? Why Why shouldn't he do that? We just came off a week in which we got some, you know, inflation data that was at least a little bit hot, sticky if nothing else.

04. How's he wrong? So now we're starting to see the problem with excessive data dependency. He got two different inflation numbers. He got softer than expected CPI. He got hotter than expected PPI. He got a U Mich survey that is flashing yellow. If you simply look at data, by the time you get a clear indication of what you should have done a few months ago, it's too late.

05. And that's the problem with this data dependency. But I mean, this is the criticism of of Feds for for decades. No, it's not. Most Fed chairs had a strategic view of the economy. Greenspan had a view of productivity. And he had that view. Bernanke had a strategic view of the economy. Yellen has a strategic view.

06. This is the first Fed chair that is almost wholly backward-looking. And that's the problem. Well, you we can't make the argument that Powell's the only There The reason why people say the Fed is always late, let's be honest, has has more to do with this current chair. You don't You don't think so? No, I think there were times when the Fed was early.

07. Greenspan was early in recognizing the productivity boost. He didn't tighten at a time when he said, "You know what? The supply side has changed." And he was absolutely right. Okay, Bernanke waited and waited before he raised rates. So there was There has been a strategic view of where we're going. This Fed, and I understand why, the one strategic view they took, 2021, inflation is transitory.

08. made a mistake. a huge mistake. And because of that, they become really shy about making that They don't want to make a mistake again. They don't, but they may end up making the mistake by being too late. By being too late. You think that he should um cave to the the political pressure from the president?

09. I don't think he should cave. I think he should cut for the economy. So I look at the labor market. The only indicator that allows me to sleep at night is the unemployment rate, 4.2. Every remains steady. It has remained steady, and that's the number he's looking at. But if you look at other indicators of the labor market, if you listen to what the companies are telling you, if you look at what's happening to people graduating from college, this is a labor market that is softening at an accelerating rate.

10. And you have to be careful about this. I mean, I listened to Brian Moynihan when he was last on our network, and he said there's a difference between job growth slowing and job losses. So the labor market growth rate is obviously slowing to to some degree. We haven't seen any anything to raise any kind of alarm, not even a yellow on layoffs, have we?

11. So we've seen the start of a yellow. Scott, history will tell you this is not linear. Think about it. When job growth stops and when people start making layoffs, other companies use that as the opportunity to do things I should have done for a long time. And that's why the labor market doesn't change in a linear fashion.

12. It changes away and then you tend to get these steps down. And that's what I'm worried about. Okay, so they should cut in September. They should They should have cut in July. Okay, but they didn't. That July's in the rearview now. They should cut in September. absolutely cut in By how much? I would cut by 25.

13. I wouldn't be super surprised if we get a repeat of last year. Remember last year they absolutely didn't want to cut in July, and they cut 50 in September. If you ask me, that's a 20% probability if we get a bad labor report before the September meeting, they'll cut by 50. What if he wants just more optionality for another inflation report?

14. Then we risk being late. And what we have to realize, and I know this is the least popular thing that I can say, is that we have sticky inflation at 2 and 1/2 to 3%. As long as inflation expectations are anchored, we can live with a slightly higher inflation because the structural side of the economy is changing.

15. It's changing in so many different ways. Okay, so you're saying it's changing to the degree where 2% doesn't matter anymore? 3% is the new 2%? further. I'll say it's changing in a way that 2% is the wrong inflation target. Unfortunately, chair Powell has ruled out looking at the inflation target as part of the monetary framework.

16. afraid He doesn't want to be the next Arthur Burns, either. I mean, that That's a key view that that he's held for a a long time. Yeah, but he also is the chair that has had 4 years of inflation above 2%, and we keep on being promised 2% down the road, and we continue to be promised 2% down the