Top Economist El-Erian Says 'High-Conviction' Calls Over 'Short, Shallow' Recession Reminds Him Of This Behavioral Trap From Last Year

Allianz chief economic adviser and noted economist Mohamed El-Erian has expressed his skepticism on some of the high-conviction calls that state a recession in the U.S. is likely to be short. He noted that it was important to keep an open mind on the possible recession’s characteristics.

“Many 'high-conviction' U.S. recession calls are immediately coupled with the assertion that it'll be 'short and shallow.' Reminds me of the behavioral trap 'transitory inflation' proponents fell into last year," El-Erian tweeted. "Critical to keep an open mind on the possible recession's characteristics."

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He had previously observed that if the Fed decided to pivot it will be because of financial stability and not because they have decided to not look at inflation anymore. The economist last month said the central bank made "two big mistakes that may go down in the history books," referring to the Fed mischaracterizing inflation as transitory and failing to act meaningfully when inflation was persistent and high.

Major Wall Street indices closed lower on Thursday. The SPDR S&P 500 ETF Trust SPY ended the session 1.03% lower while the Vanguard Total Bond Market Index Fund ETF BND shed 0.38%.

El-Erian also highlighted how the U.S. Treasury yields have surged to multi-year highs.

A new 15-year high today for the 2-year government bond yield on the US …#economy #markets #bonds pic.twitter.com/rnX5HUFgXK

— Mohamed A. El-Erian (@elerianm) November 3, 2022

“After a very friendly October caused by better expectations about forthcoming financial conditions, #investors suddenly find themselves back in the unfriendly world of higher U.S. yields and a stronger dollar,” the economist noted.

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Photo courtesy: Fortune Live Media on Flickr