“They both go higher,” El-Erian answered, but understanding his prediction makes it much more meaningful.
“I think the concern for the crypto people is this decline is happening at a time when gold is up and hitting almost $2,000,” El-Erian explained in response to the reporter asking what is happening in the market.
El-Erian further detailed the tug-and-pull between liquidity finding new forms of investment opportunity and money exiting its traditional vehicles in times of rampant inflation.
El-Erian was then asked what people should do as the reporter noted that the economist was suggesting further declines in what he referred to as a restoration.
“We have to take seriously the fact that stagflation has become the baseline,” El-Erian explained.
He went on to say that “mechanically, inflation has peaked out,” stating that base effects were going to become more favorable.
El- Erian then detailed his lack of confidence in the Fed’s ability to restore its hopes of 2% inflation over the next two years and suggested they would have to adjust their target.
El-Erian explains this pressure would lead to them moving the target from 2% inflation to 3% inflation as a way out.