Omicron Emergence Revives Fears of Stagflation: El-Erian "Now economic growth faces greater challenges," El-Erian wrote, arguing that the Omicron headlines could revive fears of stagflation, a combination of rising inflation and slowing economic growth.

By The Epoch Times

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Allianz chief economic adviser Mohamed El-Erian said in an interview on Fox News and an op-ed in Bloomberg on Nov. 28 that the emergence of the Omicron variant of the CCP (Chinese Communist Party) virus has revived market fears of stagflation.

"Faster inflation is a given," El-Erian, who also serves as President of Queens' College, Cambridge, wrote in Bloomberg, with his remarks reinforcing concerns about the persistence of price pressures after recent U.S. government data showed over-the-year consumer price inflation running at a three-decade high in October and accelerating its monthly pace from the prior month.

"Now economic growth faces greater challenges," El-Erian wrote, arguing that the Omicron headlines could revive fears of stagflation, a combination of rising inflation and slowing economic growth.

"With low growth and high inflation comes stagflation, and that is what the market is concerned about right now," El-Erian told Fox News in an interview that aired Sunday.

El-Erian wrote in the op-ed that there's considerable uncertainty around how the risk of stagflation would play out in the coming months, with the economist noting that private sector drivers of the economy are "still solid enough on a stand-alone basis to power through another COVID disruption" but growth prospects face potentially stronger headwinds due to the growing risk of policy missteps or tighter financial conditions in markets.

Markets reacted swiftly to Omicron headlines last week, with risk assets like stocks and cryptocurrencies, as well as crude oil, seeing broad selloffs on Black Friday as investors pivoted to safe havens like U.S. Treasurys.

Investors appeared more upbeat on Nov. 29, with European stocks, U.S. stock futures, cryptocurrencies, and crude oil rallying, and U.S. Treasurys seeing some outflows, pushing up yields.

Speaking to Fox, El-Erian said markets are concerned that, rather than easing loose monetary conditions gradually, the Fed might wait in the short-term and hit the brakes hard later to dampen elevated price pressures and inadvertently spark a recession.

"We haven't got a single historical experience in which the Fed has been late to the policy challenge and has not caused a recession," El-Erian said. "So rather than hit the brakes hard next year, it's much easier to ease your foot off the accelerator starting now."

At its most recent policy meeting, Fed officials voted to start dialing back the central bank's $120 billion in monthly asset purchases at a pace of $15 billion per month, though they left the door open to a faster schedule if conditions warrant. At the same time, they have ruled out any interest rate hikes before the wind-down of the asset-buys.

El-Erian also told Fox he expects a number of second-round inflationary effects, such as people demanding higher wages and corporations raising prices further to maintain margins, to keep price pressures high into next year.

The World Health Organization (WHO) named the Omicron strain, which was discovered in South Africa less than a week ago, as a "variant of concern" (VOC) on Nov. 26, sparking travel bans to several African nations.

On Monday, the WHO posted a technical brief on the variant, saying it is likely to spread internationally, posing a "very high" global risk of infection surges that could have "severe consequences" in some areas.

The agency added that, while there have been no reported deaths linked to Omicron to date, more research is needed to assess the variant's potential to escape protection against immunity induced by vaccines and previous infections.

By Tom Ozimek

Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he's ever heard is from Roy Peter Clark: 'Hit your target' and 'leave the best for last.'

The Epoch Times, founded in 2000, is headquartered in Manhattan, New York, with a mission to provide independent and accurate information free of political bias or corporate influence. The organization was established in response to censorship within China and a lack of global awareness regarding the Chinese regime's repression of the spiritual practice Falun Gong.

The Epoch Times is a widely read newspaper that is distributed in 33 countries and is available in 21 languages. The publication has been critical in providing balanced and detailed reporting on major global events such as the 2003 SARS pandemic and the 2008 financial crisis. Notably, the organization has played a key role in exposing corruption inside China.

Aside from its human rights coverage, The Epoch Times has made significant contributions in a variety of fields. It has received praise for its in-depth analysis and expert perspectives on business, the economy and U.S. politics. The newspaper has also received praise for its broad coverage of these topics.

A series of editorials titled "Nine Commentaries on the Communist Party" appeared in The Epoch Times in 2004. It asserts that freedom and prosperity in China can only be achieved by eliminating the Communist Party, which violated China's cultural and spiritual values. In addition, the organization led the Tuidang movement, which resulted in over 400 million Chinese citizens quitting the Communist Party. In spite of this, 90% of websites referring to the "Nine Commentaries" were blocked by the Chinese regime.

The Epoch Times has been at the forefront of investigating high-level corruption cases within the Chinese regime, with its reporters taking significant risks to uncover these stories. The organization has received several awards for its investigative journalism.

The organization has received several awards for its investigative journalism. For more, visit www.theepochtimes.com.

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