Mohamed El-Erian says the Fed must learn to be ‘more deserving of independence’ — or its stubbornness could take the US economy down with it

The Group of Thirty (G30), an influential think tank of current and former global finance leaders, released a 36-page report (2) this month examining the Fed's monetary policy framework in the wake of the central bank's 2025 review (3).

The report presents the views of a working group within the G30, including the well-known Mohamed El-Erian, a chief economic advisor at Allianz and professor of practice at the Wharton School, University of Pennsylvania (2).

The core message is that central bank independence isn't automatic. It must be actively earned through accountability, credibility and public trust. As the authors put it, the Fed needs to be "more deserving of independence (2)."

Where they say the Fed went wrong

The report praised some progress from the Fed's 2025 framework review, particularly its return to a symmetric 2% inflation target and its abandonment of "flexible average inflation targeting" (FAIT) — the post-pandemic policy that allowed inflation to run above target to compensate for prior undershoots (4).

Researchers at the American Institute for Economic Research argued that FAIT "contributed to the problem," saying the Fed misdiagnosed the post-pandemic inflation issue and responded too slowly — holding interest rates near-zero throughout 2021, even as evidence mounted that inflation was steadily climbing, and not just a blip (5).

El-Erian was among the loudest voices warning that the Fed was losing credibility by calling inflation "transitory" (6). His concerns proved well-founded: inflation peaked at 9.1% in June 2022 — the highest rate in over 40 years (7).

But the experts say those fixes aren't enough.

Chaired by William C. Dudley, former president of the Federal Reserve Bank of New York, the report laid out eight recommendations to shore up the Fed's framework, including publishing staff economic forecasts after each meeting of the Fed's open market committee, developing a clearer framework for quantitative easing (8) and tightening, and better communicating how it will weigh its inflation and employment goals against each other (4).

A recent Brookings Institution survey of Fed watchers underscores the urgency: three-quarters of respondents rated the threat to Fed independence as a four or five out of five. And while academics tended to give the Fed's communications an A or A-, only 8% of private-sector respondents agreed, most giving a B+ or B (9).

Why this matters for your money

When the central bank loses credibility or surrenders autonomy to political pressure, the consequences ripple directly into household finances. The interest rates set by the agency have a trickle-down effect on the borrowing and savings rates consumers see every day, from credit cards and auto loans to mortgages.

As CNBC reported after the Fed's April meeting, credit card interest rates have stayed just under 20%, while car buyers are being squeezed by both high sticker prices and elevated interest rates, with neither showing signs of letting up (10).

Mortgage rates tell the same story. The average 30-year fixed rate sits at 6.37% (11), as the Fed held rates steady at its April meeting while navigating persistent inflation and ongoing White House pressure to cut rates (which could stimulate economic activity, but make inflation worse).

In 2023, El-Erian warned the Fed's aggressive rate-hiking cycle had effectively "destroyed" both supply and demand in the housing market (12).

The following year, he told PBS the same hikes had to be done "very quickly because the Fed fell behind," and that Americans were still feeling the consequences of having to raise rates by more than five percentage points in a compressed window (13).

A new chair, old pressures

The timing of the G30 report is pointed. Jerome Powell's term as Fed chair expires this month (14), and on May 11, the Senate voted to advance the confirmation of Trump's chosen replacement, Kevin Warsh.