WEBVTT 00:02.033 --> 00:05.000 align:left position:10% line:77% size:80% JUDY WOODRUFF: After announcing another half-point hike today, Federal Reserve Chair Jay Powell 00:07.500 --> 00:10.100 align:left position:10% line:71% size:80% indicated that more hikes are on the way in 2023 and a likely prolonged period of higher rates. 00:12.100 --> 00:16.866 align:left position:10% line:77% size:80% This comes as inflation shows signs of slowing gradually. But there are again concerns that 00:18.766 --> 00:22.833 align:left position:10% line:77% size:80% the Fed is not going to be able to tame inflation without triggering a recession. 00:22.833 --> 00:24.800 align:left position:10% line:89% size:80% Geoff Bennett has the latest. 00:24.800 --> 00:29.400 align:left position:10% line:77% size:80% GEOFF BENNETT: Judy, today's rate hike is the seventh this year. Altogether, 00:29.400 --> 00:32.933 align:left position:20% line:77% size:70% the Federal Reserve has now raised interest rates from just above 00:32.933 --> 00:37.933 align:left position:10% line:77% size:80% zero earlier this year to just over 4 percent, its highest level in 15 years. 00:39.900 --> 00:43.100 align:left position:10% line:77% size:80% Even though inflation has slowed, Fed Chairman Jerome Powell today explained 00:44.566 --> 00:46.566 align:left position:10% line:83% size:80% why he believes more increases may be necessary next year. 00:46.566 --> 00:49.766 align:left position:10% line:77% size:80% JEROME POWELL, Federal Reserve Chairman: The worst pain would come from a failure 00:49.766 --> 00:54.733 align:left position:10% line:71% size:80% to raise rates high enough and from us allowing inflation to become entrenched in the economy, 00:56.800 --> 01:01.266 align:left position:10% line:77% size:80% so that the ultimate cost of getting it out of the economy would be very high in terms of 01:04.833 --> 01:08.100 align:left position:10% line:77% size:80% employment, meaning very high unemployment for extended periods of time. 01:08.100 --> 01:09.933 align:left position:20% line:83% size:70% I wish there were a completely painless way 01:11.800 --> 01:15.833 align:left position:10% line:77% size:80% to restore price stability. There isn't. And this is the best we can do. 01:17.766 --> 01:21.166 align:left position:10% line:77% size:80% GEOFF BENNETT: We're joined now by Mohamed El-Erian, president of Queens' College, 01:21.166 --> 01:24.933 align:left position:10% line:83% size:80% Cambridge university, and chief economic adviser at Allianz. 01:24.933 --> 01:26.966 align:left position:10% line:89% size:80% It's great to have you here. 01:26.966 --> 01:28.700 align:left position:10% line:77% size:80% MOHAMED EL-ERIAN, Chief Economic Adviser, Allianz: Thanks for having me. 01:28.700 --> 01:32.866 align:left position:20% line:77% size:70% GEOFF BENNETT: So, the Fed's rate projections show no cuts in 2023, 01:32.866 --> 01:37.866 align:left position:10% line:77% size:80% which is a contrast from what many people expected ahead of today's announcement. 01:39.800 --> 01:41.866 align:left position:10% line:77% size:80% What's your assessment of what you heard from the Federal Reserve chairman today? 01:41.866 --> 01:46.700 align:left position:10% line:77% size:80% MOHAMED EL-ERIAN: I think they have realized that they are late. They have taken their peak 01:48.666 --> 01:52.266 align:left position:10% line:77% size:80% rate up to 5.1 percent. So they're telling us they're going to do another 75 basis points. 01:54.866 --> 01:58.700 align:left position:10% line:71% size:80% And what's most striking, Geoff, is, when they met three months ago, and provided their projection, 02:00.800 --> 02:05.700 align:left position:10% line:77% size:80% not a single Fed official thought we would need to go above 5 percent. Today, 02:07.700 --> 02:11.833 align:left position:10% line:77% size:80% just three months later, 17 out of 19 believe we should go above 5 percent. 02:13.266 --> 02:14.966 align:left position:10% line:83% size:80% And it just shows you that they're playing catchup. 02:14.966 --> 02:19.666 align:left position:20% line:77% size:70% GEOFF BENNETT: Well, you say the Fed is late and addressing inflation. 02:19.666 --> 02:24.633 align:left position:10% line:77% size:80% And you have also said that the Fed has contributed to undue market volatility. 02:24.633 --> 02:26.633 align:left position:40% line:89% size:50% How so? 02:26.633 --> 02:30.300 align:left position:20% line:71% size:70% MOHAMED EL-ERIAN: Because it has been very slow in characterizing inflation initially. 02:32.366 --> 02:36.966 align:left position:20% line:71% size:70% So, remember the whole of last year, they told us it was transitory, don't worry, it will go 02:38.966 --> 02:42.666 align:left position:20% line:71% size:70% away by itself, you could look through it. And then, in November, they changed their mind, 02:44.666 --> 02:48.633 align:left position:10% line:77% size:80% rightly so, and said, it's not transitory, but they didn't move in any meaningful way. 02:48.633 --> 02:52.166 align:left position:20% line:77% size:70% So the market has had to adjust to that. And we have had quite a bit 02:52.166 --> 02:56.533 align:left position:10% line:77% size:80% of volatility and quite a bit of asset value destruction in the marketplace, 02:56.533 --> 03:01.500 align:left position:10% line:77% size:80% as the Fed embarked on what now is the most front-loaded hiking cycle for 40 years. 03:05.700 --> 03:09.100 align:left position:10% line:77% size:80% This is meaningful, because we don't know what the impact on the economy is. 03:09.100 --> 03:13.000 align:left position:10% line:77% size:80% The market right now is worried that the Fed is going to push us into recession. 03:13.000 --> 03:15.933 align:left position:10% line:83% size:80% GEOFF BENNETT: You use the R-word, recession. I mean, 03:15.933 --> 03:19.766 align:left position:10% line:77% size:80% are we looking at a short and shallow recession or something worse than that? 03:19.766 --> 03:23.500 align:left position:10% line:77% size:80% MOHAMED EL-ERIAN: So, I hope we don't end up into a recession. I'm not in the camp 03:23.500 --> 03:28.500 align:left position:10% line:77% size:80% that says it's 100 percent likely. It's probable, but it's not certain. 03:30.966 --> 03:34.433 align:left position:10% line:71% size:80% But if we do fall into it, Geoff, it's very hard to assert that it will be short and shallow. 03:37.066 --> 03:42.066 align:left position:10% line:71% size:80% Those who are saying it will be short and shallow with confidence are falling into the same trap as 03:44.033 --> 03:48.300 align:left position:10% line:77% size:80% they did with transitory inflation, trying to make bad news good news. So I will tell 03:50.233 --> 03:51.733 align:left position:10% line:77% size:80% you we're going through a recession, say, oh, don't worry, it's short and shallow. 03:51.733 --> 03:54.433 align:left position:10% line:83% size:80% We don't know. And we have got to be very careful. 03:54.433 --> 03:57.000 align:left position:10% line:83% size:80% But the major issue now is to avoid going into a recession. 03:57.000 --> 04:01.733 align:left position:10% line:77% size:80% GEOFF BENNETT: So what should the Fed do when inflation is so sticky, parked at 7 percent? 04:01.733 --> 04:03.833 align:left position:20% line:83% size:70% MOHAMED EL-ERIAN: That's the problem. 04:03.833 --> 04:08.833 align:left position:10% line:83% size:80% Once you are in suboptimal world, there is no first best. 04:10.766 --> 04:14.633 align:left position:10% line:77% size:80% That's the cost of being late. That's the cost of mischaracterizing inflation 04:14.633 --> 04:19.200 align:left position:10% line:77% size:80% as transitory. It has no choice but to go further. And, unfortunately, 04:19.200 --> 04:24.200 align:left position:10% line:77% size:80% there will be collateral damage. And I say this with a heavy heart because it was avoidable. 04:25.566 --> 04:27.633 align:left position:10% line:83% size:80% GEOFF BENNETT: And many Americans have, in many ways, 04:27.633 --> 04:30.633 align:left position:10% line:77% size:80% become accustomed to paying higher prices in nearly every aspect of their lives. 04:30.633 --> 04:35.633 align:left position:10% line:77% size:80% They're paying more in interest, in credit cards, in mortgages. What's next? 04:37.600 --> 04:39.933 align:left position:10% line:77% size:80% MOHAMED EL-ERIAN: So it's going to be mainly services. And the big question is going to be, 04:39.933 --> 04:44.933 align:left position:20% line:77% size:70% will wages start moving up? And if they do, it's a double-edged sword. 04:46.866 --> 04:50.700 align:left position:10% line:77% size:80% On the one hand it's good because people are protecting their purchasing power. On 04:52.600 --> 04:55.600 align:left position:10% line:77% size:80% the other hand, if companies certainly just pass on the higher wages into higher prices, 04:55.600 --> 05:00.633 align:left position:20% line:83% size:70% you have that risk of a wage-price cycle. 05:02.633 --> 05:06.400 align:left position:10% line:77% size:80% Geoff, the one thing we have to remember is that, while we are all feeling 05:08.466 --> 05:12.233 align:left position:20% line:71% size:70% inflation, it is hitting the hard -- the poor particularly hard. This is not just an economic 05:14.266 --> 05:18.366 align:left position:10% line:77% size:80% issue. This is a social issue. And it has, unfortunately, a lot of negative consequences. 05:19.200 --> 05:20.566 align:left position:20% line:89% size:70% GEOFF BENNETT: Indeed. 05:20.566 --> 05:22.433 align:left position:10% line:83% size:80% Mohamed El-Erian is president of Queens' college, 05:22.433 --> 05:26.266 align:left position:10% line:83% size:80% Cambridge University, and chief economic adviser at Allianz. 05:26.266 --> 05:27.533 align:left position:20% line:83% size:70% Thanks so much for being with us. 05:27.533 --> 05:29.100 align:left position:20% line:89% size:70% MOHAMED EL-ERIAN: 05:35.400 --> 05:37.233 align:left position:30% line:89% size:60% Thank you.