- Top economist Mohamed El-Erian said the Friday jobs report will force the Federal Reserve’s hand.
- While the report showed signs of labor-market strength, it also means the Fed will have to “break the economy” to tame inflation, he noted.
- The central bank is “going to have to somehow break this economy” to truly address inflation, El-Erian said.
Top economist Mohamed El-Erian said Friday’s strong jobs report is good news for the economy but bad news for the Federal Reserve.
In an interview with Bloomberg, El-Erian, who is an economic adviser to Allianz and Gramercy, said the labor market data goes against the Fed’s insistence that the economy is at a neutral position.
“[The Fed] is not going to welcome this report,” El-Erian said. “It’s bad news for them in every single way. It makes the notion that we are at ‘neutral’ comical.”
In particular, El-Erian pointed to the inversion between the 2- and 10-year Treasury notes, which have been flashing a recession signal for more than a month straight. The spread, which has long preceded past economic downturns, deepened on Friday to its lowest point in decades.
“[The spread] is now at forty basis points, it’s saying that [the Fed] is going to have to somehow break this economy to bring inflation under control,” El-Erian maintained.
As for markets, El-Erian noted that technical indicators remain robust and still favor stocks following the new jobs data.
Nevertheless, the economy is in an uncertain spot now because the central bank has repeatedly been late with policy maneuvers, according to El-Erian. Now, the Fed is scrambling to make up for its own delays.
“We’re not at neutral,” he said. “The Fed is going to have to do more and hopefully it won’t break the economy as it tries to catch up…no one likes to see a central bank catch up frantically.