Markets worried COVID omicron variant will lead to new restrictions, boost inflation: El-Erian
Allianz CEO Mohamed El-Erian warned that 'inflation is not transitory'
Allianz CEO Mohamed El-Erian on Sunday said the marketplace is worried that the coronavirus omicron variant will lead to more travel bans and restrictions, along with continued inflation after new fears sent stocks tumbling on Wall Street Friday.
El-Erian appeared on "Fox News Sunday," saying a period of low growth and high inflation, called stagflation, is a growing concern amid the news of the mutated COVID-19 variant.
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"The marketplace is worried about two things," El-Erian said. "One, that yet another variant of COVID is going to hit them hard, we'll travel less, we'll go out to restaurants less, and we may have additional restrictions that are imposed on us.
"And issue number two, the marketplace is worried also that this will cause more inflation, that supply chains will be disrupted even more," El-Erian said.
Amid the mounting fears on Friday, Wall Street saw the Dow Jones Industrial Average down 905 points, or 2.5%, for its largest one-day point and biggest percentage drop since October 2020. The S&P, meanwhile, fell 2.27%, which is also its largest one-day point decline since October 2020. The tech-heavy Nasdaq Composite slid 2.23%.
The energy sector also saw a 4.04% drop, while the U.S. oil benchmark fell 13%.
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El-Erian warned that inflation could continue well into next year and needs to be taken seriously "because it can, by itself, derail our economic recovery."
The CEO said it is time for a change in policy at the Federal Reserve after President Biden nominated Fed Chair Jay Powell, who has repeatedly called inflation transitory, for a second term.
El-Erian argued how important it is for the Fed to realize that "inflation is not transitory."
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"Because the worst thing that can happen is that, in addition to the supply disruptions, which I can't do anything about, in addition to the labor shortages, they destabilize our expectations, and we change behavior even faster," he said.
This causes companies to increase prices faster and wage earners to insist on higher wages, which leads to "a cycle of inflation."