Tags: El-Erian | risk | Fed | easing

El-Erian: Risk Abounds in Fed’s Latest Easing Move

Thursday, 13 Dec 2012 07:49 PM

By Dan Weil

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
The new easing steps the Federal Reserve announced Wednesday have some virtue, but they carry a lot of danger, too, says Pimco CEO Mohamed El-Erian.

“We should all welcome the greater policy emphasis being placed on unemployment,” he writes in Fortune. “This national jobs crisis has enormous human costs. . . . And the longer it persists, the harder it is to solve.”

The Fed plans to keep short-term rates near zero until the unemployment rate falls to 6.5 percent.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

But, “the bad news is that the institution, with its imperfect tools for the challenge at hand and with other federal government entities essentially MIA, may be taking on an unsustainable burden,” El-Erian says.

“As recognized by [Fed Chairman Ben] Bernanke, the outcome of the Fed's unusual activism is neither predictable nor costless.” There’s no guarantee that expected benefits will materialize, and there could be unpleasant, unintended consequences, El-Erian maintains.

“Second, the Fed's growing involvement is ultimately inconsistent with the proper efficient functioning of a market economy,” he writes.

The central bank’s Treasury and mortgage-backed security purchases will mean it is “heavily involved in markets as both a referee and player.”

El-Erian’s Pimco colleague Bill Gross, co-chief investment officer, sees potential problems too.

The Fed’s decision to keep interest rates as low as possible “means the Treasury is issuing debt for free,” he tells Bloomberg. “There are complications. Inflation is one of the complications.”

Editor's Note:
Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

© 2014 Moneynews. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web

Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Retype Email:
Country
Zip Code:
 
You May Also Like
Around the Web

Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved