Mohamed El-Erian, the CEO of PIMCO – the biggest bond fund in the world – is not a huge fan of the Fed right now.
In a new Financial Times op-ed, El-Erian says that yesterday’s FOMC policy meeting demonstrates that the U.S. is in “policy purgatory.”
In the piece, El-Erian explains how the Fed is making things worse right now:
While some would have favoured even greater policy activism, the Fed’s measures have been unprecedented – from flooring policy rates virtually at zero for quite a while (and also providing forward guidance until the end of 2014) to ballooning its balance sheet in an attempt to counter the de-leveraging of the private sector and induce it take more risk. In the process, it transitioned from completing dysfunctional markets to dominating some of their functioning; and it is sowing the seeds of possible policy complications down the road while exposing itself to greater political intrusion, undermining the price discovery process, and distorting asset and resource allocations.
While yesterday’s meeting was a bit of a dud, El-Erian doesn’t think the increasing risk/reward of additional policy measures will stop the Fed from acting at the next meeting:
The Fed’s attempt to overcome its policy dilemma has little chance of succeeding given the degree of political dysfunction in Washington. It is only a matter of weeks until, once again, Fed officials will feel compelled to act, and despite full knowledge that their measures will have limited effectiveness in delivering desired outcomes.
Read the entire piece at the FT.com >