Pimco’s Mohamed El-Erian says the Fed is more concerned about the threat of recession than hyperinflation and that’s why they’re willing to engage in inflationary policies.
Speaking to Der Spiegel, El-Erian said that he expects the U.S. government to adopt certain fiscal adjustments, but also to inflate its way out of its debt problems.
But why is the U.S. willing to go down this path while Germany and Europe will not?
El-Erian: Europe and Germany, especially, have been very scared of hyperinflation. The US is influenced by a different historical experience, that of the fear of another Great Depression. So this country has a huge aversion to recession, huge. And if you ask a policymaker if you’re going to make a mistake, which mistake would you rather make, they would say I’d rather make an inflation mistake than make a growth mistake.
El-Erian described the impact of the Fed’s policies as “inflating the whole world,” saying the liquidity is flowing everywhere, not just into the U.S.