El-Erian: Fed Will Have Unsettling 'Stop-Go-Stop' Phase

The transcript discusses the mechanical peak in CPI due to base effects and how the Fed might respond as inflation decelerates. The focus is on core PCE and CI rather than headline inflation, with concerns about a potential economic slowdown. The Fed faces a choice between a Type 1 error (slamming on the brakes) and a Type 2 error (easing off the brakes), with implications for recession and inflation. The discussion suggests the Fed might ease off slightly to minimize growth impact, leading to a stop-go phase that could unsettle markets and the economy.

What is the Federal Reserve expected to focus on as inflation decelerates?

• Headline inflation

• Stock market trends

• Core PCE and CI

• Unemployment rates

What is a Type 1 error in the context of the Federal Reserve's economic policy?

• Focusing on unemployment

• Slamming on the brakes

• Easing off the brakes

• Ignoring inflation

What is the main concern for the Federal Reserve regarding the economy?

• Rapid economic growth

• Increasing employment

• Stable inflation

• Slower economic growth

What phase is anticipated to be unsettling for the economy?

• Continuous growth phase

• Stop-go-stop phase

• Recession phase

• Inflation phase

What is the expected impact of the stop-go-stop phase?

• Increased employment

• Rapid inflation control

• Unsettling effects on the economy

• Stability in markets