Mohamed El-Erian: The worst of inflation is behind us, so the Fed should stay in wait-and-see mode

Summary

Mohamed El-Erian argues that the worst of inflation is behind us and the Fed should hold rates steady for the rest of the year, as remaining inflation from AI has a positive supply-side impact. He believes markets have not fully internalized the reform-oriented Warsh Fed, which will break the co-dependency with central banks and be positive long-term despite near-term volatility. Additionally, he discusses the Bessent Doctrine, highlighting a shift to geo-economics where geopolitics and national security will increasingly shape economic outcomes.

• Inflation is peaking, and the Fed is expected to keep rates unchanged through year-end.
• AI-driven inflation brings a positive supply-side effect, unlike oil and tariffs.
• The shift to a reform-oriented Warsh Fed will reduce forward guidance and break market–central bank co-dependency.
• Short-term volatility is likely as markets adjust to less guidance, but long-term it is beneficial.
• The Bessent Doctrine reflects a move from efficiency-focused policy to geo-economics.
• Economic outcomes will be increasingly influenced by geopolitics and national security rather than pure commercial factors.