El-Erian Says Last Few Weeks Of Data Suggest Recession Can Still Be Averted: 'Hoping Strength Of Economy Stays'

Allianz chief economic adviser and noted economist Mohamed El-Erian said he believes the last few weeks of data suggest a recession can still be averted.

"Now, that’s a good thing," he told Bloomberg TV. "Just look at food inflation in today’s print — it’s very easy to see that it is the most vulnerable segments of our population that are suffering. I am hoping that the strength of the economy stays because the alternative draw of a deep recession to get to a 2% target, which is itself arbitrary. I am not sure that is the right response," he said.

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Major Wall Street indices closed in the red after the consumer price index released on Tuesday showed inflation increased 0.5% in January, with an annual gain of 6.4%, against the consensus estimate of 6.2%. The rise in the number was led by higher food and gasoline prices as well as rents.

The SPDR S&P 500 ETF Trust (NYSE:SPY) closed 0.046% lower while the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) gained 0.74%.

Changing Target: El-Erian noted that it is very difficult to change the target when you have missed it for so long.

"…because the minute you do that, your credibility is hit even harder. I think that if people sat down today, they would not come up with 2%. They would come up somewhere between 3 to 4% for two reasons," he said.

The economist explained that one reason is that the supply side is changing and relative and absolute price changes are needed to lubricate that change.

"The second is we found out 2% is not far away from the zero bound. We thought it was but it’s not. So we’d go to 3 to 4%," he explained.

"I think the most likely outcome is that inflation gets stuck at about three to four percent, the Fed keeps on promising us 2% in the future and hopefully we learn to live with stable 3-4% inflation and then we can make something de facto de jure," he said.

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