Emily
Editor, Senior Moderator
https://www.cbsnews.com/news/full-tr...on-12-12-2021/
Full transcript of "Face the Nation" on December 12, 2021
December 12, 2021 / 1:36 PM / CBS News
MARGARET BRENNAN: We learned last week that inflation is rising at the fastest rate in nearly four decades. We go now to Mohamed El-Erian, chief economic adviser for Allianz Financial Services Company and he joins us this morning from Philadelphia.
Good to have you here.
MOHAMED EL-ERIAN (Allianz Chief Economic Adviser): Thanks for having me.
MARGARET BRENNAN: The White House says that this number we just got, the 6.8 percent inflation figure, is backward looking because gas prices are coming down right now.
Do you think that we've actually passed peak inflation?
MOHAMED EL-ERIAN: So it is a backward-looking number. I don't think we have peaked -- we have passed peak inflation. And that's despite all the efforts that the White House is putting in to limit inflation. I think we're going to see inflation stay around that level for a while.
MARGARET BRENNAN: How long?
MOHAMED EL-ERIAN: A few months. You know, we're seeing a very interesting transition. The original driver of inflation, supply disruptions, labor shortages, the driver is still there but less powerful. But the driver has planted all these other seeds for other sorts of inflation. And that's not a problem because of what the White House is or is not doing. This is a problem because of what the Federal Reserve is failing to do.
MARGARET BRENNAN: Well, the Federal Reserve chair, Jay Powell, has said he will retire that word "transitory." It sounds like you are saying that word should not be used at all, period.
MOHAMED EL-ERIAN: Yes. I've been saying this for months. The characterization of inflation is transitory is probably the worst inflation call in the history of the Federal Reserve. And it results in a high probability of a policy mistake. So the Fed must quickly, starting this week, regain control of the inflation narrative and regain its own credibility, otherwise it will become a driver of higher inflation expectation that feed onto themselves.
MARGARET BRENNAN: That's an incredible thing to say, not just about the Fed chair, but the Treasury secretary is a former Fed chair herself.
Why do you think that they are both fundamentally wrong?
MOHAMED EL-ERIAN: Well, I think the numbers have proven that transitory inflation was a mischaracterization. The Fed never expected inflation to be at 6.8 percent. If you look at all the projections they made this year, they were way below this. So they fundamentally misanalysed the inflation.
Now, that's not a problem if they catch up now. If they're honest about their mistake and take steps now, they can still regain control of it.
MARGARET BRENNAN: So the Fed has a meeting this coming week. As you know, they've been undertaking these emergency programs because of the pandemic, buying something like $100 billion in bonds each month.
Are you saying they need to hit the brakes hard right now in order to get control?
MOHAMED EL-ERIAN: No, I'm saying in order to avoid hitting the brakes hard, because if you've hit the brake hard in a few months there's a risk you send this economy into a recession. And it would be unnecessary harm to livelihoods.
What they need to do now, Margaret, is ease their foot off the accelerator. There is no reason why they should be injecting so much liquidity. There is so -- no reason why they should be boosting the housing market at a time when house prices are pricing Americans out of buying homes. They should ease their foot off the accelerator in order to avoid slamming on the brakes later on.
MARGARET BRENNAN: And raising rates, when do we talk about that?
MOHAMED EL-ERIAN: Oh, we should be starting to talk about that now. There is the possibility that they may have to raise rates.
Look, it's important to stop inflation being embedded into the system because two things happen when inflation gets embedded. One, you lose purchasing power and the poor suffer the most. Second, you get a Fed overreaction and then you get a recession and then you get income losses. So you really want to navigate this process in a timely and orderly way...
Full transcript of "Face the Nation" on December 12, 2021
December 12, 2021 / 1:36 PM / CBS News
MARGARET BRENNAN: We learned last week that inflation is rising at the fastest rate in nearly four decades. We go now to Mohamed El-Erian, chief economic adviser for Allianz Financial Services Company and he joins us this morning from Philadelphia.
Good to have you here.
MOHAMED EL-ERIAN (Allianz Chief Economic Adviser): Thanks for having me.
MARGARET BRENNAN: The White House says that this number we just got, the 6.8 percent inflation figure, is backward looking because gas prices are coming down right now.
Do you think that we've actually passed peak inflation?
MOHAMED EL-ERIAN: So it is a backward-looking number. I don't think we have peaked -- we have passed peak inflation. And that's despite all the efforts that the White House is putting in to limit inflation. I think we're going to see inflation stay around that level for a while.
MARGARET BRENNAN: How long?
MOHAMED EL-ERIAN: A few months. You know, we're seeing a very interesting transition. The original driver of inflation, supply disruptions, labor shortages, the driver is still there but less powerful. But the driver has planted all these other seeds for other sorts of inflation. And that's not a problem because of what the White House is or is not doing. This is a problem because of what the Federal Reserve is failing to do.
MARGARET BRENNAN: Well, the Federal Reserve chair, Jay Powell, has said he will retire that word "transitory." It sounds like you are saying that word should not be used at all, period.
MOHAMED EL-ERIAN: Yes. I've been saying this for months. The characterization of inflation is transitory is probably the worst inflation call in the history of the Federal Reserve. And it results in a high probability of a policy mistake. So the Fed must quickly, starting this week, regain control of the inflation narrative and regain its own credibility, otherwise it will become a driver of higher inflation expectation that feed onto themselves.
MARGARET BRENNAN: That's an incredible thing to say, not just about the Fed chair, but the Treasury secretary is a former Fed chair herself.
Why do you think that they are both fundamentally wrong?
MOHAMED EL-ERIAN: Well, I think the numbers have proven that transitory inflation was a mischaracterization. The Fed never expected inflation to be at 6.8 percent. If you look at all the projections they made this year, they were way below this. So they fundamentally misanalysed the inflation.
Now, that's not a problem if they catch up now. If they're honest about their mistake and take steps now, they can still regain control of it.
MARGARET BRENNAN: So the Fed has a meeting this coming week. As you know, they've been undertaking these emergency programs because of the pandemic, buying something like $100 billion in bonds each month.
Are you saying they need to hit the brakes hard right now in order to get control?
MOHAMED EL-ERIAN: No, I'm saying in order to avoid hitting the brakes hard, because if you've hit the brake hard in a few months there's a risk you send this economy into a recession. And it would be unnecessary harm to livelihoods.
What they need to do now, Margaret, is ease their foot off the accelerator. There is no reason why they should be injecting so much liquidity. There is so -- no reason why they should be boosting the housing market at a time when house prices are pricing Americans out of buying homes. They should ease their foot off the accelerator in order to avoid slamming on the brakes later on.
MARGARET BRENNAN: And raising rates, when do we talk about that?
MOHAMED EL-ERIAN: Oh, we should be starting to talk about that now. There is the possibility that they may have to raise rates.
Look, it's important to stop inflation being embedded into the system because two things happen when inflation gets embedded. One, you lose purchasing power and the poor suffer the most. Second, you get a Fed overreaction and then you get a recession and then you get income losses. So you really want to navigate this process in a timely and orderly way...
