El-Erian says the Fed has to move aggressively to beat inflation

Noted economist Mohamed El-Erian said Friday that the Federal Reserve has to take bold actions immediately to restore confidence that this inflation surge can be tamped down. “He needs to regain control of the inflation narrative … now he’s losing total control,” El-Erian spoke on “Squawk Box ” of Fed Chair Jerome Powell. “He’s got to move because, if he doesn’t, he’s going to be chasing the market and he’s not going to get there.” His comments came after a worse-than-expected inflation report. Inflation accelerated further in May, with prices rising 8.6% from a year ago for the fastest increase since December 1981. Economists polled by Dow Jones expected a gain of 8.3%. The chief economic advisor at Allianz said aggressive rate hikes could help the Fed regain its credibility, adding that the stock market would react negatively initially but would bounce back quickly. “I think you get rid of the interest rate, inflation risk by hiking aggressively and giving a clear message but you have to deal with credit risk,” El-Erian said. “It’s going to be a ‘V.’ We come down first before we recover.” The Fed has enacted two rate increases totaling 75 basis points, including a 50 basis point increase in May . Fed members floated the idea of implementing two more 50 basis point rate increases over the summer then taking a step back in September, but traders are now pricing in more rate hikes following the hot inflation report. “If you think the first 10 days of June and if they are what prevails the whole month, next measure is going to be even higher, so inflation has not peaked,” El-Erian said. “We need something to happen to stop this inflationary process broadening throughout the economy.”