- Mohamed El Erian said the Federal Reserve missed a "golden opportunity" in taking action on inflation.
- Economist El Erian said the Fed should have tapered sooner and been clearer on the rate outlook.
- The Federal Reserve on Wednesday signaled it will raise rates in March and sounded a hawkish note.
- Sign up here for our daily newsletter, 10 Things Before the Opening Bell.
The Federal Reserve should have been clearer on its plans to tackle rising inflation at its first policy meeting of the year, according to famous economist Mohamed El-Erian.
The Fed, led by Chair Jerome Powell, indicated on Wednesday after a two-day meeting that it will raise US interest rates as early as March, when it also intended to wind down its asset-purchasing program.
El Erian, who is chief economic advisor to PIMCO parent Allianz, said tapering should have taken place sooner and the central bank needed to communicate its intentions on interest rates better.
"It should have stopped purchasing assets immediately and given a clearer signal on rate increases," El Erian said in a Bloomberg Opinion piece.
El Erian told CNBC separately the Fed had missed a "golden opportunity" to telegraph its intentions to the markets and "catch up with realities on the ground."
"It's what I expected, but not what I think they should have done. Fed falls further behind economic developments," he said on Twitter.
Powell sounded hawkish when answering questions, but did not set out a decisive plan. He refused to rule out potential hikes at every Fed meeting for the year, seven in total, or the possibility of a 50 basis point rate increase at some point.
"I think there's quite a bit of room to raise interest rates without threatening the labor market," Powell said.
He emphasized that policymakers had not yet "made these decisions"
Inflation is running at its hottest in 40 years at the moment, as bounce-back in the economy from the pandemic, coupled with a labor shortage and ongoing disruption from supply-chain bottlenecks wreak havoc with consumer prices.
Ultra-loose monetary policy from the Fed over the past two years has inflated asset prices, so the prospect of a tightening has spooked investors in some of those markets that have benefitted the most, like stocks and crypto.
El Erian said in the Bloomberg opinion piece that the central bank had tried to "please financial markets at the cost of increasing the challenges ahead for the economy, sound policy making and its own credibility."
"Last thing you'd expect is no Fed action," he tweeted subsequently.
El Erian told CNCB that the market needs answers from Powell, saying: "Does the market want him to be more dovish or does it want greater clarity? I suspect it's the latter."
He said that markets recognise the liquidity regime is changing but not how it is changing, which will lead to significant volatility.
"Volatility is here and will stay," he said.
He said separately on Twitter that the market ws focusing on "what the Fed did not announce today rather than what it did," on Twitter.
US stock futures were in negative territory on Thursday, after the benchmark indices closed lower following Powell's press conference, as equity investors sold off stocks that could start to lag once rates rise.