El-Erian Says Fed Risks Tipping Economy Into Recession Every Time It Falls Behind

Allianz chief economic adviser and noted economist Mohamed El-Erian reportedly said every time the central bank falls behind, the risk of the central bank pushing the economy into recession goes up.

"The minute you go to the 10-year (Treasury yield), you know you are bringing in a whole set of other issues including growth. And the concern that’s in the market, and we have seen how inverted the curve remains, is that we may end up having the Fed tip us into recession," El-Erian told CNBC.

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On Thursday, major Wall Street indices closed in the green on Thursday after Treasury yields dropped from earlier highs following comments from a Federal Reserve official. Atlanta Federal Reserve President Raphael Bostic argued for quarter-point hikes and said he preferred a "slow and steady" course of action for the central bank, according to a Reuters report. The SPDR S&P 500 ETF Trust SPY closed 0.78% on Thursday while the Vanguard Total Bond Market Index Fund ETF BND lost 0.21%.

Rising Yields: El-Erian's comments come in the backdrop of the 10-year Treasury yield breaching the 4% mark for the first time since November led by fears of persistent rate hikes and lingering inflation. The yield was last trading close to 4.056% at the time of writing.

"That’s totally unnecessary. Every time the Fed falls behind, and this is the third time it has fallen behind in two years, the probability of the Fed tipping the economy into recession goes up. So, that’s what you are seeing in terms of the yield curve – the 10-year vs the 2-year," El-Erian said.

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