Written by Ashton Snyder on
 May 19, 2024

Former Obama Adviser: Policy Shifts Complicate Inflation Goals

Addressing the nation on Fox News Channel’s America Reports, economist Dr. Mohamed El-Erian shared insights on the complexities of curbing inflation to the desired 2% target.

During his appearance last Friday, Dr. El-Erian, who is also the president of Queens’ College and Chief Economic Adviser at Allianz, underscored the severe challenges facing the U.S. economy in achieving its inflation targets, as Breitbart reports.

Dr. El-Erian, who formerly chaired the Obama Global Development Council, articulated that the U.S. inflation rate, currently around 3.5%, is proving stubbornly difficult to reduce.

He attributed the challenges to significant shifts in both the domestic and global economic landscapes. Previously, the U.S. benefited from a deflationary environment characterized by deregulation and fiscal prudence.

Shift From Globalization to Economic Fragmentation

Dr. El-Erian pointed out that, globally, we have moved from an era of increasing globalization to one of economic fragmentation, impacting economic policies and their outcomes.

“What they call the last mile, which is getting from around 3.5% inflation to 2%, which is the target, is going to be very hard, and it will include trade-offs,” said Dr. El-Erian in his interview.

The economist explained that these trade-offs are necessary due to the transition from a global to a more fragmented economic environment. This shift presents new hurdles that were not previously in play when the global economy was more integrated.

Domestic Changes Affect Economic Stability

“First, domestically, things have changed. We used to be in a deflationary environment, deregulation, liberalization, fiscal prudence. Now, we have industrial policy, government intervention, and fiscal irresponsibility. So, the domestic environment has changed,” Dr. El-Erian elaborated.

This domestic shift, he noted, complicates efforts to manage inflation effectively. The policy landscape that once supported deflation now contributes to inflationary pressures.

Dr. El-Erian further emphasized the difficulties posed by these economic shifts, explaining, “The global environment has changed. We are no longer globalizing, we are fragmenting the global economy. So, if you look at the environment, you’re trying to overcome a lot of headwinds when those were tailwinds.”

Overcoming Economic Headwinds

The discussion on America Reports highlighted the considerable headwinds that policymakers must navigate to steer the economy towards stability and growth.

Overcoming these challenges will not only require adept policy adjustments but also a clear understanding of the new economic realities both domestically and globally. As Dr. El-Erian concluded, the path to stabilizing inflation at the 2% target is fraught with complexities that demand careful consideration of the changed economic environment.

In recapitulating the essence of Dr. El-Erian's insights, the economic shifts from a deregulated, globalized environment to one marked by increased government intervention and economic fragmentation make achieving a stable, low inflation rate more arduous than ever. These changes necessitate innovative approaches to policy-making that account for both domestic transformations and global economic fragmentation.

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About Ashton Snyder

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