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El-Erian Tells Investors to ‘Be Humble’ as Market Risk Heightens

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Mohamed El-Erian, who last year predicted inflation would be the problem it is now, says investors should “just be humble and have humility” to navigate the heightened geopolitical uncertainties after Russia’s invasion of Ukraine.

“We know that this was a surprise to most,” the bond-market veteran told Bloomberg Television Friday. “There’s very little hedging that has been put in place. There’s a whole range of potential outcomes. This is a major change, this is the sort of thing we will be talking to our kids and grandkids about in terms of major geopolitical change.”

El-Erian, the former chief executive officer of Pacific Investment Management Co. and a Bloomberg Opinion columnist, in July said that inflation, at the time running at a 5.4% annualized pace, wouldn’t be transitory as the Federal Reserve was projecting.

Inflation now is at 7.5%, and the central bank has signaled it will start a rate-increase regime in March.

The Fed “was too slow,” he said Friday. “At the end of the year, I suspect we’ll end up with four maybe five hikes at most, and inflation will still be running hot. Inflation expectations will be an issue, but the hope for the Federal Reserve will be to be bailed out by productivity,” adding, “Unlikely.”

“I suspect that as the marketplace sees inflation remaining an issue, you will have a tightening of financial conditions,” he said. “And you are going to have pockets of illiquidity.”

His views do not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

(Photo: Wei Leng Tay/Bloomberg)

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