According to Jinshi, Mohamed El-Erian said that the weakness of the inflation indicator favored by the Federal Reserve highlights that the economic slowdown is amplifying the risk of central bank policy mistakes. He pointed out that "the speed of economic slowdown has exceeded the expectations of most economists and the expectations of the Federal Reserve."
El-Erian believes the Fed is overly data-dependent and will need a lot of historical data to change that, and he warns the Fed faces the risk of keeping interest rates "too high for too long."
In his view, the probability of a US recession is 35%, while the probability of a soft landing is 50%. He stressed that "the more likely mistake at the moment is that the Fed does not start cutting interest rates early enough, resulting in the final rate cut having to exceed the level that it should have."
