Noted economist and chief economic adviser at Allianz, Mohamed El-Erian, has voiced his concerns about the Federal Reserve’s approach to inflation, warning that it could be making a big “mistake.”

El-Erian, on CNBC’s Closing Bell on Tuesday, criticized the Federal Reserve’s heavy reliance on data, which, according to him, is causing a delay in crucial policy adjustments. He pointed out that by the time data provides a clear indication of what should have been done, it’s already “too late.”

El-Erian also highlighted the issue of the Fed’s strategic view of the economy, stating that unlike previous Fed chairs like Alan Greenspan, Ben Bernanke and Janet Yellen who had a forward-looking approach, the current chair, Jerome Powell is almost “wholly backward looking.” He believes this has led to a lack of strategic vision for the future.

He also suggested that the Fed should cut rates, citing the softening labor market as a key concern. He proposed a cut by 25 basis points, and predicted a 20% probability of a 50 basis point cut if the labor report before the September meeting is poor.

Speaking on President Donald Trump‘s increasing pressure on Powell for rate cut, El-Erian said, “I don’t think he should cave. I think he should cut for the economy.”

Lastly, he expressed concerns over the Fed’s 2% inflation target, arguing that the changing structure of the economy necessitates a higher target of 2-3%. However, he noted that the current chair, Powell, has ruled out revising the inflation target.

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El-Erian’s remarks come ahead of Powell’s highly anticipated speech at the Jackson Hole Economic Policy Symposium. The event, which is scheduled for August 21-23, is seen as a critical moment for the Fed’s dovish faction, as Powell is expected to provide insights into the central bank’s future policy direction.

His speech is being closely watched by investors, economists, and financial leaders, with many considering it a potential “make-or-break” moment for the Fed.

El-Erian’s warning aligns with his previous criticisms of the central bank’s approach to inflation. In March, he criticized Powell’s use of the word “transitory” to describe the potential inflationary impact of tariffs, calling it a “big policy mistake.” He also suggested that Powell should resign to protect the central bank’s independence amid escalating political attacks. 

Earlier this week, Goldman Sachs expressed skepticism that the much-anticipated Fed rate cut may not result in huge cash flows to the stock market.

The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ which track the S&P 500 index and Nasdaq 100 index, respectively, gained 1.76% and 0.91%, over the past month, according to Benzinga Pro data.

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