El-Erian Says Congress Should Enhance Fed's Accountability, Require It To Follow Bank Of England's Example

Allianz chief economic adviser and noted economist Mohamed El-Erian said he believes Congress should enhance the Federal Reserve's accountability and follow the example of the Bank of England in structurally inserting outside views in its policy formation.

In an opinion piece he wrote for the Financial Times, El-Erian said growth and social outcomes immediately confront two tricky issues.

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He highlighted that one is regarding an inflation target that is too low and yet hard to revise given that the Federal Reserve has already undermined its credibility.

The second, he says, is about how to better incorporate policymaking agencies beyond the central bank in a coordinated fight against inflation.

The economist believes that Congress should help by formulating a more comprehensive approach to easing supply-side constraints.

He cited recent U.S. policy advances on energy transition issues which he believes provide a foundation to build on for a future of high, inclusive and sustainable growth, along with genuine financial stability.

"Let's hope the administration can secure sufficient congressional bipartisanship to take advantage of this important window," El-Erian said.

Price Action: El-Erian's comments come after markets witnessed their worst session in 2023 last week following the release of strong economic data. The SPDR S&P 500 ETF Trust SPY closed 2.67% lower for the week while the Invesco QQQ Trust Series 1 QQQ lost 3.09%.

The economist asserted that the rush to a comforting narrative highlights a mix of cognitive traps and unusual economic fluidity which, however, could not withstand the subsequent upside data surprises for inflation, jobs and activity.

El-Erian talked about the growing recognition that there is a limit to goods disinflation and that inflation in the services sector may prove sticky. "This better understanding of short-term inflation dynamics is a necessary step to avoid the Fed falling far behind for the third time in two years," he wrote.

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