The Federal Reserve missed a shot to provide clarity on its plan to tackle inflation during its January news conference, Allianz chief economic advisor Mohamed El-Erian told CNBC on Wednesday. El-Erian's comments on "Closing Bell" come after the central bank's policymaking arm met Wall Street's expectations to keep interest rates the same, while indicating it would likely hike soon. The Federal Open Market Committee's next two-day meeting is set for March, and it's widely expected to raise rates from their near-zero levels at that point. While the market initially held its gains after the Fed announced its decision Wednesday, Chair Jerome Powell's news conference shortly thereafter caused issues, El-Erian noted. Indeed, stocks came off their highs when the Fed chair said there was "quite a bit of room" to raise interest rates before it would affect the labor market. El-Erian said he believes the market wants Powell to be more clear about the central bank's inflation-fighting approach rather than simply maintaining its highly accommodative monetary policy regime. "The Fed missed a golden opportunity to catch up with realities on the ground. Instead, it has fallen further behind," said El-Erian, who is the former CEO of investment giant Pimco. Traders started to price in five quarter-point interest rate hikes after Powell's comments. El-Erian attributed the significant volatility on Wall Street this week to uncertainty around the Fed's approach to tightening policy in the coming months. "The market has recognized the liquidity regime is changing, but they're not clear on how it's changing," El-Erian said. "That's what the market has got to adjust to, that inflation will no longer allow the Fed to be our best friend forever," he added.
Heidi Gutman | CNBC