Mohamed El-Erian has a to-do list for Ben Bernanke. It ain’t easy.
Writing on the FT‘s Alphaville blog, the PIMCO CEO praises the Fed Chairman’s reappointment, but says his second term promises to be “equally challenging” as it will be defined by four issues:
- Exiting an unprecedented set of unconventional Fed policies.Too early an exit could mean another recession; overstaying risks inflation and could undermine the “proper functioning of some markets.”
- Defending the Fed’s institutional integrity by resisting ill-advised political attempts to curtail its power.
- Revamping the Fed’s focus to regulatory reform, plus incorporating asset prices and exchange rates into its policies.
- Managing crisis prevention by coordinating across government agencies and countries.
Of these, point 3 might be the toughest. The current idea is to heap more regulatory responsibilities on the Fed. This is something at which it hasn’t shown too much aptitude in the past, and may not jibe with Bernanke’s background as an academic, non-bureaucrat economist.
As for the point 1, just as was the case in dealing with the crisis, expect a lot of false starts, hits and misses during the unwinding process.
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