(Bloomberg) -- Mohammed El-Erian said investors should prepare for increased market volatility if the Federal Reserve pulls back on stimulus measures set in motion by the Covid-19 pandemic.

“I worry a little bit that this wonderful world we’ve been living in of low volatility, everything going up, may come to a stop with higher volatility,” El-Erian, the chief economic adviser at Allianz SE and president of Queens’ College, Cambridge, said on “Fox News Sunday.”

While a lot depends on behavioral changes, the Fed “should ease off the pedal-to-the-metal monetary stimulus,” he said. 

“If I were an investor, I would recognize that I’m riding a huge liquidity wave thanks to the Fed, but I would remember that waves tend to break at some point, so I would be very attentive,” he said. 

El-Erian said elevated inflation and supply-chain bottlenecks are only partly rooted in transitory reasons. He predicted “another year at least of high and persistent inflation.” 

“Things will get worse before they get better,” El-Erian said. “So we’re going to have more shortages of goods. We’re going to have higher prices. Inflation will remain in the 4 to 5% level.” 

El-Erian is a columnist for Bloomberg Opinion. 

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