The U.S. Fed is failing in four ways: Mohamed A. El-Erian

OPINION: The U.S. Fed has yet to make the comprehensive analytical shift from a world dominated for years by deficient aggregate demand to the current one where deficient aggregate supply plays an important role.

Let us first dispose with what seems to interest economists and markets the most right now.

On the economic outlook, the Fed will acknowledge that, once again, inflation has proved to be higher and more stubborn than projected and that, despite some signs of weakness, the US economy remains in a “good place.” With that, it is likely to again lift rates by 75 basis points and leave unchanged its previously announced plans for quantitative tightening.

This will come as a relief to those worried that the Fed, playing a desperate game of catch-up, would raise rates by 100 basis points and worsen what is already an uncomfortably high risk of tipping the US economy into recession. Yet such relief will again prove fleeting unless the Fed also regains policy credibility by addressing its four persistent failures.