El-Erian Warns Investors “Stop Worrying about Return on Capital, Start Worrying about Return of Capital”
The comments below are an edited and abridged synopsis of an article by Tyler Durden
Mohamed El-Erian, President of Queens’ College, Cambridge University, and Chief Economic Advisor at Allianz, the corporate parent of PIMCO, where he previously served as CEO and co-CIO, argues in the following interview with Goldman Sachs’ Allison Nathan that the Fed could be heading towards a historic monetary policy mistake by reacting too slowly to rising inflationary pressures.
The questions asked: Are you concerned that Fed officials are too relaxed about the inflation outlook; are inflationary pressures due to pandemic disruptions, and labour shortages due to extended unemployment benefits, likely to recede soon; how much of a risk are inflation expectations really; what should the Fed be doing versus what they are most likely to do; is the Fed right to wait to act given that demand is expect to slow next year; would it be harmful to put contractionary monetary policy in place at the same time as contractionary fiscal policy; will the significant contraction in fiscal policy slow inflation even without monetary policy normalization; how effective would rate hikes be in dampening the current inflationary pressures; what about the recent sharp moves in G10 front-end rates, and how would you advise fixed income investors to navigate these moves; and in the midst of the current inflationary pressures and associated policy actions, equity markets, especially in the US, have been hitting new highs. What’s behind that, and is there a risk of a correction given the economic outlook.