El-Erian Is 'Terrified' About Central Banks Losing Their Autonomy: 'The Thing That Keeps Me Up At Night...'

Allianz chief economic adviser and noted economist Mohamed El-Erian reportedly said he is terrified about the thought of central banks losing their autonomy while highlighting he has never seen such a divergence between the Federal Reserve's forward guidance and the market's expectations.

"The thing that keeps me up at night and the reason why I have been so publicly critical of the Fed is that if we are not careful, this episode of inflation and the way inflation is hitting particular segments of the population hard is going to end up putting in place something that none of us want to put in play," he said during a panel discussion, as per a video posted by Bloomberg TV.

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The economist asserted that operational autonomy is critical for a central bank and it is imperative that these institutions own their mistakes and learn from them.

"I am terrified that if central banks don’t own their mistakes, if central banks don’t learn from their mistakes, and are public about this process, people are going to say, ‘You’re not accountable enough and I am not sure you should have the amount of political autonomy that you do.' And operational autonomy is absolutely critical to [a] central bank," he said.

Divergence: El-Erian noted that the market itself is doubting the Fed and said that while the central bank has been very consistent over the last few months about keeping rates high throughout the year, the market disagrees.

“The market says, ‘No! you’re not. You’re going to start cutting the second half and by the end of the year, interest rates will be a full percentage point below what you tell us they’re going to be,'” he said.

The economist said he has never seen the kind of divergence between the Fed's forward guidance and the market's expectations as is prevalent in current times.

"I worry that this inability to be held accountable is going to lead first to markets starting to go on their own way and then, of course at the end of the day the Fed can force an adjustment but it becomes more costly if the market hasn’t done some of the heavy lifting. Secondly, it will put the political autonomy of central banks in play which is something that would be very harmful to economic well-being," he said.

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