As economists debate the possibility of a recession next year, the US is stuck in uncomfortable territory, getting closer to stagflation.
from his side, The economist and head of Queen’s College at the University of Cambridge, Mohamed El-Erian, emphasized that The concerns of the US Senator, Elizabeth Warren, while discussing the policy of the Federal Reserve Chairman during a hearing in the Senate last week, which indicated the growing fears that the policy of the US Central Bank would push the economy towards the slope of recession.
El-Erian said in his comment, “The current basic scenario for the American economy is that we are in an inflationary stagnation stage,” adding: “Unfortunately, a soft landing in inflation to safe levels – which maintains high growth rates and high employment rates – has become unlikely.” “.
Al-Arian added, in his statements to Yahoo Finance, that access to this region was due to the wrong policies of the US Federal Reserve, and even if it is not responsible for the inflation problem as it is external and related to supply chains, but its handling of it was slow at first, followed by a more violent reaction. It is necessary, which led the markets to question the credibility of the Central Bank, and many central banks around the world made the same mistake, according to what Al Arabiya.net has seen.
El-Erian explained that the problem of confidence in the policies of central banks has pushed the markets to violent fluctuations during the past two years.
He attributed the reason to the fact that the loss of credibility on the part of the markets is mainly due to the fact that central banks reveal their policies and clarify the results that they aim to reach through these policies, and then the major players in the markets adopt these goals and work together in one group and one way to reach this goal. However, weak confidence means that the markets react early to their expectations of what the central banks will do, and are ahead of it, and even market losses preceded the Fed’s decisions to raise interest rates, a scenario of “weak confidence”.
Returning to the current basis, which is stagflation, one side of it is inflation, which is hypothetically accompanied by high growth and a low unemployment rate, and the other side is stagflation, which is completely opposite.
El-Erian explained that the balance is tending to the stagnation side more at the present time, with the persistence of high inflation rates.
Earlier this month, the World Bank cut its forecast for global growth this year to 2.9%, from a previous forecast of 4.1%, and issued a warning saying: “The global outlook faces significant downside risks, including heightened geopolitical tensions, and an extended period of reminiscent of 1970s-like stagflation, widespread financial pressures from higher borrowing costs, and rising food insecurity.
El-Erian pointed out that the current crisis is expanding further, as companies cannot pass the costs on to consumers who are already skeptical about the future of the economy, and the increased possibility of falling into recession and thus job loss, which leads them to reduce demand.
He added that the drivers of consumer demand are not only related to the size of the current income of individuals, but are more related to their expectations of future income, and therefore the more bleak the picture is about the future, the lower the demand at the present time.
On the other hand, El-Erian explained that the current crisis, certainly a global one, has hit the 3 largest economic regions in the world, beginning with the United States, passing through China and reaching Europe, which suffers in particular, due to the danger of cutting off Russian natural gas and Ukrainian grains from it, as it may fall. Major economies like Germany fall into recession once the gas is cut off.
This was further highlighted by the Eurozone PMI on Thursday, which fell to a 16-month low in June.