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Bond expert and economist Mohamed El-Erian

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El-Erian: Don't Fight the Soft Landing Idea

By Vildana Hajric and Jonathan Ferro

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The idea that the U.S. economy could slow down just enough to skirt a recession is so strong that it doesn’t make sense to go against it, according to Mohamed El-Erian.

“You cannot get in the way right now of the soft-landing narrative — that narrative is building momentum,” the chief economic adviser at Allianz SE and a Bloomberg Opinion columnist said Friday. “Everything we’ve seen so far this week — CPI, PPI, the banks — has all been about a soft-landing narrative.”

Recession calls have been getting pushed back all year as economic data continues to show strength, particularly in the labor market. And U.S. inflation sharply cooled off in June when the consumer price index increased 3%, the smallest advance in more than two years, while producer prices barely budged.

“We are definitely in a good window for inflation data,” El-Erian said on Bloomberg Television. “It will last into September.”

El-Erian doesn’t see a recession around the corner.

“I’ve been pushing back over and over again — there’s nothing automatic about a recession,” he said. Though, he added, should the Federal Reserve over tighten — which is possible — then an economic downturn could happen.

“We get there if there’s another policy mistake. But the economy itself is strong and robust.” Central-bank officials should hike just once more and then be done, he said.

If the Fed attempts to get to its 2% inflation target too quickly, it risks contracting demand more than would be healthy and “breaking something,” El-Erian said.

Other prominent Wall Street figures are making a similar argument. Rick Rieder, BlackRock Inc.’s chief investment officer of global fixed income, said this week that the path to 2% inflation could bring pain to millions of workers, a trade-off that “doesn’t make sense.”

“Interest rates — how much would you have to move them to get the unemployment rate to a level to slow wages? It’s not worth it. Why would you take millions of people out of work because you need to go from 2.7% to 2%?” Rieder said on last week’s episode of the What Goes Up podcast.

  — With assistance from Katie Greifeld.
Pictured: Mohamed El-Erian. Photo: Wei Leng Tay/Bloomberg

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