Pimco's El-Erian Sees 2014 Risk, as Central Banks Try to Hand Off Growth to Private Sector

Tuesday, 31 Dec 2013 07:09 AM

By Dan Weil

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Many experts say the biggest risks surrounding the global economy and financial markets next year will center on central bank policy.

The Federal Reserve, for one, already has announced that it will begin paring back its massive easing program, cutting its monthly bond purchases by $10 billion to a total of $75 billion.

Pimco CEO Mohamed El-Erian says central banks will have a tricky time shifting from "policy-induced growth to higher, durable and more inclusive private sector-led growth," he told the Financial Times.

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"In each case — that of the Fed, the European Central Bank and Bank of Japan — the policy transition is complex. It involves changes in an already highly experimental policy mix."

As for the Fed, even as it announced its tapering of quantitative easing earlier this month, it stressed that short-term interest rates would remain at record lows — near zero — for some time.

"The biggest risk for 2014 is definitely the risk of the Fed getting it wrong," Didier Saint-Georges, an investment committee member at money manager Carmignac Gestion, tells the Times.

Meanwhile, as Fed Chairman Ben Bernanke nears the Jan. 31 end of his tenure, experts give him mixed marks for the Fed's stimulus program.

Former White House adviser Larry Summers defends Bernanke. "If [he] had not maintained a loose orientation to monetary policy, we could have easily gone back into recession" after 2009, the Harvard professor tells The Wall Street Journal.

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