Federal Reserve policy measures such as announcing interest rates will stay low for years to come, quantitative easing and shuffling its Treasury portfolio keep interest rates low are imperfect tools that confuse the economy as much as they do help, says Mohamed El-Erian, CEO of Pimco, the world's largest bond fund.
The Fed has purchased over $2.3 trillion in assets from banks, a liquidity-inducing measure known as quantitative easing, and has shuffled its Treasury holdings in way to push long-term interest rates such as mortgages low.
More recently, the monetary authority has said it will communicate more of its thinking behind its decisions to the markets, including rate-hike forecasts from voting members while vocally stating that interest rates will stay low through 2014.
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Monetary policy may help steer the country from a double-dip recession, but it also brings inflationary pressure and possible confusion.
The federal government, meanwhile, needs to do more to improve the economy such as narrowing deficits and solving housing woes.
"This unusual policy activism has helped prevent a damaging deflationary spiral. But it has not been sufficient to restore America on the path of sustainable growth and sufficient job creation, nor will it," El-Erian writes in a Financial Times column.
"As acknowledged by Ben Bernanke, the Fed chairman, the benefits have come with 'costs and risks.' Moreover, despite its repeated pleas for fiscal and housing engagement, the Fed has inadvertently provided cover for other government agencies to continue avoiding difficult, but necessary, decisions."
The Fed, meanwhile, still feels the need to use monetary policy to fix the economy, which might not be the right medicine right now.
"For both moral and political reasons, it believes that it cannot be seen to stand on the sideline as the economy struggles with a deeply-entrenched unemployment crisis and political dysfunctionality – even if this means having to use even more imperfect, indirect and, increasingly, unpredictable policy measures."
CEOs, meanwhile, are welcoming the Fed's decision to keep interest rates low.
"The world’s on life support right now," says Bill Browder, chief executive of the Hermitage hedge fund, according to CNBC.
"When they unplug that life support, do you want to own something that has an artificial value?"
Others agree that for now, low benchmark lending rates are good for business
"I don’t think it's bad, I think the Fed is signaling the fact that they’re putting their priorities into shaping up the economy I think it will be good for business," Carlos Ghosn, chief executive of Renault-Nissan, also tells CNBC.
"At the appropriate time, they will reverse course when they think that the U.S. economy is better."
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