Famous economist El Erian: The 2% target is no longer correct.

Allianz Chief Economic Advisor and President of Queens' College, Cambridge University, Muhammed El Erian, stated that the Fed has been very late in its interest rate cuts. Speaking on a broadcast he participated in on CNBC, El Erian expressed that Powell should be very careful with every move he makes and should no longer target a 2% inflation rate.

"Data dependency is creating problems"

El Erian, Powell's speech at Jackson Hole will address the options ahead for the Fed, and he also stated that the institution's continuous reliance on data-driven decisions has caused problems.

"Powell will give a speech discussing the options before him. And actually, this is not what the White House wants. We are now seeing an excessively data-dependent Fed during this period. Powell has very different inflation figures in front of him. On one hand, there is the CPI, which has come in below expectations, and on the other hand, there is the PPI, which has been announced significantly above expectations. If you see the things you should have done a few months ago with clear signals a few months later, then it means you are late. The problem with data dependency starts here."

"They didn't want to make a mistake, but in the end, they did it again"

The famous economist, who stated that the Fed under Powell has consistently been late, noted that such a situation was not seen during the tenures of Yellen, Bernanke, or Greenspan, saying, "In 2021, they said 'Inflation is temporary...'. Then they were late. While trying not to make the same mistake, they ended up making other mistakes and this time they were late on the rebate."

"They must be very careful"

El Erian, stating that there is currently a weakening job market, said, "This weakness is progressing at an increasing pace. There is a gradual progression. Layoffs are not too many but they are increasing. When this number increases significantly, others will actually start to make the layoffs they have wanted to do for a long time. The Fed needs to be very careful."

"They should have made a rebate in July, and they should also make a rebate in September"

El Erian also stated that the Fed definitely needs to cut interest rates in September:

"They should have made a rebate in July. Let's not look back and focus on the future. They must also make a rebate in September. I think they will cut by 25 basis points, but I wouldn't be very surprised if it turns out to be a repeat of last year. Last year, they said they didn't want to cut rates in July, and then they cut by 50 basis points in September. I think there is a 20% chance of this, but if they receive very poor job market data before the meeting, then they will definitely go for a 50 basis point cut."

"The 2% inflation target is no longer correct"

The economist, stating that inflation has now become sticky and persistent in the range of 2.5-3%, expressed that expectations need to be lowered:

"I know this is not a popular opinion, but we have a sticky and persistent inflation ranging from 2.5% to 3%. If people's expectations for inflation to decrease diminish, then we can live with this rate. Because the structural situation of the economy is now changing. It is changing in many ways. For this reason, I no longer believe that the 2% inflation target is a correct target. Inflation has been above 2% for 4 years, and they still show us this level as a target."

Published: August 20, 2025 13:39Last Updated: August 20, 2025 13:49