More Warnings from Wealthy Men

Another warning came today - this time from another champion of the Money Printer.

Dear Fellow Traveler:

Mohamed El-Erian has joined Jamie Dimon in warning about the state of economic affairs.

In the Financial Times, El-Erian said the Federal Reserve is trapped and the usual playbook is worthless.

For those who don't know, El-Erian is the former CEO of PIMCO, the bond giant that manages trillions. He's now the chief economic advisor at Allianz and president of Queens' College, Cambridge.

When this guy talks about central banks and monetary policy, people listen.

I typically don’t.

This is largely because this guy got rich off the very thing he’s complaining about (the Central Bank’s QE programs did PIMCO and others very well for 15 years).

But I’ll listen to him now, because it appears to be warning season.

Inflation Woes

Instead of victory laps, Jerome Powell & Co. are facing a summer in which inflation and employment are under threat.

That's not supposed to happen, according to the textbooks.

Now, El-Erian has warned about what we might call the Four Horsemen of Uncertainty.

First, there's tariff roulette. Nobody knows if Trump's tariffs are a negotiating tactic or the new permanent reality, and markets hate this kind of uncertainty.

Then comes fiscal chaos. Between the "big, beautiful" budget bill and government restructuring, fiscal policy is a complete wildcard. We’ve already seen Moody’s downgrade the U.S. financial conditions. What’s next? The possibility of the Bond Vigilantes pressing for higher yields (thus threatening the U.S. equity market.)

The data has gone wild, too. Here's the weird part: sentiment indicators are screaming "stagflation!" while actual economic data shrugs.

When soft and hard data diverge this badly, something's got to give.

Finally, there's the AI question mark.

Sure, AI could boost productivity and save us all.

But when?

And by how much? Nobody knows.

On Its Heels

The Fed is now playing defense when it should be playing offense.

They're getting attacked by the White House.

Their credibility is shot, and rate cuts are pushed to September at the earliest.

Meanwhile, the dollar is showing concerning weakness, raising uncomfortable questions about whether the world still trusts the US as a safe haven for global savings.

Here's the money printer dilemma: If stagflation hits, the Fed faces an impossible choice. Print money to save jobs? Inflation explodes.

Tighten to fight inflation? The economy craters. There's no good option.

El-Erian suggests the Fed needs a complete overhaul—new communication strategies, scenario planning, and maybe even abandoning the sacred 2% inflation target. (This is about 20 years too late.)

But they've already ruled that out, which might be a historic mistake.

For markets, this means volatility continues through summer.

Watch the dollar - further weakness could accelerate.

Stagflation hedges like gold and commodities could outperform.

The sovereign wealth strategy should reign.

September becomes the ultimate showdown.

That’s where I think we’ll see the next 5% to 8% drawdown.

The Timeline Just Got Worse

Here’s the problem…

The Fed just moved the goalposts again.

When I was on Money Morning LIVE! in 2022, I noted that Fed Chair Jerome Powell said the Fed wouldn’t reach its 2% inflation target until 2025.

That didn’t happen. Now, they’re saying it won’t happen until 2027.

We're looking at another two years of above-target inflation.

According to the May FOMC minutes, tariffs will "boost inflation markedly in 2025" with smaller impacts in 2026. Translation: The inflation fight isn't close to over. The Fed is essentially admitting they've lost control of the timeline.

Five years of above-target inflation.

Five years of the "transitory" narrative being dead wrong.

Five years of the Money Printer working overtime just to keep the system from imploding.

Five years of multiple four-sigma downturns.

The Fed's traditional tools are failing in this new environment.

Historical relationships are breaking down. The money printer might need to run hotter than anyone expects—not because the Fed wants to, but because it's out of options.

When central bankers push their victory lap from 2025 to 2027, that's not a minor adjustment—it's an admission of defeat.

In this world, understanding monetary policy and liquidity isn't just academic.

It's survival. When the Fed loses control of both the narrative and the timeline, markets write their own story.

Money printer will go BRRRRR… soon enough.

Stay defensive… and stay positive.

Garrett Baldwin