The Federal Reserve’s interest-setting committee begins its meeting Tuesday, with its latest decision expected Wednesday. This comes at a time of economic turbulence, with inflation expectations rising, a stock market correction and changing tariff policy. All of this has resulted in an economic outlook that is more uncertain, writes Mohamed El-Erian in Bloomberg.

El-Erian is the president of Queens’ College, Cambridge, economic adviser at Allianz and the former CEO of PIMCO. He spoke with “Marketplace” host Kai Ryssdal about his view of the American economy right now. The following is an edited transcript of their conversation.

Kai Ryssdal: What is your sense of what’s being done to the American economy right now?

Mohamed El-Erian: So what’s being done is an attempt to reorganize it, both domestically and internationally. Domestically, we’re seeing major efforts going on with the government, of course. The hope is to streamline it, make it more efficient, and we’ve been promised a number of measures to deregulate the private sector. In terms of international, we’re seeing attempts at a fairer trading system. This is a really tricky thing to do, both domestically and internationally. It will involve what President Donald Trump called little disturbances in the short term, what others see as a very bumpy journey. What is completely uncertain is what the destination looks like.

Ryssdal: Reorganize seems charitable, but let’s talk about two things: the short term and the long term. In the short term, you yourself have now come out and said your estimates on the chances of a recession this year are now 30-ish percent instead of the 10-ish percent they were a couple of weeks ago. Do you recall a time when a president of the United States, through his policies, has sent the United States into a recession?

El-Erian: I don’t. This sort of thing you see in developing countries. You’ve seen it recently in Argentina, where the notion is you dismantle an existing system in order to put another one up. Think a little bit about you being on a plane and suddenly the decision is to dismantle the engine and put a new one on. It’s actually very difficult to maintain altitude when you’re trying to do that.

Ryssdal: What’s the worst case then?

El-Erian: So the worst case is that the U.S. economy slows to what’s called stall speed. So let’s give it some numbers. Coming into the year, the International Monetary Fund thought that we would grow at about 2.7%. I suspect if the IMF were to update its projection today, that number will be 2% or below. Why does that matter? Because stall speed for the U.S. economy is about 1%. Then the probability of a recession suddenly goes up significantly. If we then fall into recession, you’re going to see a couple of things happening. You’re going to see the labor market getting hit, and income is the only thing keeping people going at the low-income stages after they’ve run down all their savings and incurred a lot of debt. And businesses are going to go from “wait and see” to postponing investment programs for a long time. And in this environment and with inflation where it is, the Fed will not be able to get us out with interest rate cuts. So that is the negative scenarios that people are worried about.

Ryssdal: I want to go over that again, the idea of the Federal Reserve and what happens. Because, as you and others point out, the Fed is going to be challenged with rising inflation dynamics, right, because of the tariffs and price levels probably going up, with a softening labor market. And that is a very bad place for the Fed to be.

El-Erian: Yeah, that’s the so-called whiff of stagflation, where the two mandates of the Fed compete with each other in a negative sense. Look, if the Fed was really serious about its 2% inflation target, we would not be talking about when will the Fed cut rates and by how much? We would be talking about, when is the Fed going to hike rates? So I think when push comes to shove, the Fed will tolerate higher inflation for now in an attempt to protect the real economy. But there’s only so much the Fed can do if the disturbances are coming from elsewhere.

Ryssdal: Elsewhere, meaning?

El-Erian: Meaning, for example, what’s happening with the Department of Government Efficiency. One, it increases the income insecurity of federal employees, and when your income insecurity goes up, you spend less. Two, it is disrupting a lot of committed payments that had other commitments on their side. So we’re seeing a lot of federal contractors having to lay off people. So there’s a lot of disturbances going on the DOGE side, and then on the tariff side, when you’re not sure what the level of tariff is going to be, then you will postpone lots and lots of decisions that contribute to both current and future growth.

Ryssdal: We have had, so far, colloquially, vibes about what might be happening to the economy now. We don’t have yet hard data, and that seems to me to be a challenge, because the hard data is going to be kind of not very good.

El-Erian: So the soft data, which is survey data, turns first. And the survey data has turned in a very significant manner. It has involved people’s confidence about future prospects, about employment and about income coming down, and people’s expectation of inflation going up. Normally, it takes about three to six months for the soft data to be reflected in the hard data. So we are, call it in Month 2, of the soft data really weakening right now.

Ryssdal: Let’s get back to where we started on the way out here, and that is the idea that what President Trump is doing to this economy is also being done to the global economy. The global order is being disassembled at lightning speed. And I guess I wonder, as you talk to people around the world, as you do in very significant positions of influence, what is their sense of what we’re doing and what it might mean?

El-Erian: I think people are hesitant. They’re worried. There’s this whole notion of you cannot replace something with nothing. So they’d like to have greater clarity on where are we going after all this. What does this notion of a fairer trading system look like? So they have uncertainties both about the journey and the destination.