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Mohammed El-Erian, chief economic adviser at Allianz, the corporate parent company of PIMCO where he previously served as CEO, recently appeared for an interview on CNBC to discuss inflation, the federal reserve, and the price of bitcoin rising as a result of monetary policy.

In the interview, El-Erian was asked what would happen to gold, bitcoin and other cryptocurrencies if his predictions of the Federal Reserve (Fed) changing their targets for inflation came true.

“They both go higher,” El-Erian answered, but understanding his prediction makes it much more meaningful. The interview began with El-Erian being asked to explain the state of inflation in the economy.

“Basically, I think the markets have understood that we have three issues: One is high and persistent inflation is with us, two is the Fed is way behind, and three, the pathway for orderly disinflation is pretty narrow,” El-Erian told the reporter. “Because of that, you’re starting now to have questions about growth.”

El-Erian went on to explain that Goldman Sachs has stated there is a 35% chance of a recession within the next two years. The fear associated with that large allocation being applied to the idea of a recession adds a level of complexity when one tries to navigate the corridors of inflation and growth metrics.

“I think the concern for the crypto people is this decline is happening at a time when gold is up and hitting almost $2,000,” El-Erian explained in response to the reporter asking what is happening in the market. “Because the big argument for crypto is it’s a diversifier. At a time of inflation, it is attractive.”

El-Erian further detailed the tug-and-pull between liquidity finding new forms of investment opportunity and money exiting its traditional vehicles in times of rampant inflation. He referred to the current market price of bitcoin and other cryptocurrencies as a “restoration of value,” assuring spectators that what is currently happening is good for the market.

“We are adjusting to a paradigm in which liquidity is no longer abundant,” El-Erian told CNBC. “And it is no longer predictable.”

El-Erian was then asked what people should do as the reporter noted that the economist was suggesting further declines in what he referred to as a restoration. El-Erian responded with resilience and said yes, that it is likely we would see prices go lower.

“We have to take seriously the fact that stagflation has become the baseline,” El-Erian explained. “That recession has become the risk scenario, that we’re no longer anywhere near the goldilocks scenario. Yes, I would be cautious across the board.”

He went on to say that “mechanically, inflation has peaked out,” stating that base effects were going to become more favorable. But El-Erian made it clear that “We cannot declare inflation is over, expect especially core inflation to persist at high levels. We’re nowhere near the end of our inflation challenge.”

El- Erian then detailed his lack of confidence in the Fed’s ability to restore its hopes of 2% inflation over the next two years and suggested they would have to adjust their target. El-Erian was then asked what would force the Fed to change their target, and specifically asked what that target might look like.

“What will force them to change their target is the recognition that by being so late that they can’t get to that target and their credibility is threatened,” El-Erian answered. “They will also worry that by hitting the brakes too hard they may push this economy, not just into a short-term recession but into a longer-term recession.”

El-Erian explains this pressure would lead to them moving the target from 2% inflation to 3% inflation as a way out. If they create a moving goal that becomes easier to obtain then it looks like the central planning of the economy is still redeemable as they are capable of making the changes they claim they have the power to do, thus restoring credibility.

“That’s what you get when you waited too long to recognize what inflation is and to take action,” El-Erian stated. “We should have started QT (quantitative tightening) last year and we didn’t.”

The reporter then asked his final question, “Ok, Mohammed. If you’re right, and they do that. What happens to gold and what happens to crypto on that day?”

“They both go higher in a world like that,” he responded.