Global growth is more fragile, raising the odds of a policy mistake by central banks, top economist Mohamed El-Erian says

Mohamed El-Erian.

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• There's an increasing chance of a policy mistake by central banks, Mohamed El-Erian wrote in a Financial Times column Thursday. 
• Global growth fragility is increasing, with Europe's energy crisis, China's lockdowns, and inflation pressures all adding risk.
• The hot inflation report means an unprecedented third straight rate hike of 75 basis points by the Fed is necessary, he said.

The combination of Europe's energy crisis, China's COVID-19 lockdowns, and high inflation have made global growth more fragile, and the risk that central banks will make a policy mistake is increasing, according to Mohamed El-Erian.

Since Fed Chair Jerome Powell's Jackson Hole Speech in August, the central bank has reiterated its commitment to taming high inflation. That will bring more "bracing realities" for investors and policymakers in the coming months, El-Erian wrote Thursday in a Financial Times column.

"First, global growth fragility is increasing. Europe is yet to supplement the fiscal-driven protection of households from high prices with an orderly energy allocation approach that minimizes immediate and longer term structural damage to the economy," he said, adding that the European Central Bank must still weigh the implications of new energy policy. 

Meanwhile, China continues to seek a politically acceptable way out of pandemic lockdowns that have dramatically slowed the economy. 

Even the US, which is one of the strongest world economies, faces pressures from inflation and demand destruction, he said.

Now, according to El-Erian, the Fed has no choice but to move ahead with an unprecedented, third consecutive 75-basis-point rate hike next week. 

"Needless to say, this is not a good environment for central banks to be playing catch-up. The risk of yet another policy mistake, already uncomfortably high, is increasing," he warned.

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