Writing for the FT.com, excerpts of which can be found below.
At the conclusion of their two-day policy meeting, Fed officials are likely to announce few if any changes to the big three components of their current policy stance: floored policy rates will not be touched; forward guidance language will not evolve much; and balance sheet purchases will remain as is, at $85bn a month (also with no change in composition).
... Further still.
They (the Fed) have repeatedly discovered that the institution’s ability to promote economic growth and create jobs is weaker than what was anticipated and is needed. This was true for quantitative easing 2 and Operation Twist; it is now also the case for QE3.
They also know that signals to alter the course of policy can easily end up by, excessively and pre-emptively, tightening financial conditions and undermining growth and jobs. Just witness what happened between May and June when the mere mention of a taper disrupted the functioning of financial markets and pulled the rug under housing.
The result of all this goes beyond the shackles of a low-level growth equilibrium, persistent unemployment that risks getting more deeply embedded in the structure of the economy, and high and rising inequality. It also speaks to an increasingly unhealthy co-dependency between the Fed and financial markets.
Markets are now consequentially reliant on continued Fed accommodation, and this regardless of its impact on the real economy and top-line corporate revenue growth. And since unfortunately the Fed is essentially the only policy making entity working hard to promote employment, it ends up seemingly hostage to these markets given that they are such a critical component in the policy transmission mechanism.
The Fed is unable (some would – less charitably – say unwilling) to move either decisively forward or resolutely back. Instead, it appears mired in a classic state of active inertia. This is unlikely to change any time soon.
so it seems the El-Erian (and Pimco) thinks that the Fed is stuck in its present QE mode for the foreseeable future.
At the conclusion of their two-day policy meeting, Fed officials are likely to announce few if any changes to the big three components of their current policy stance: floored policy rates will not be touched; forward guidance language will not evolve much; and balance sheet purchases will remain as is, at $85bn a month (also with no change in composition).
... Further still.
They (the Fed) have repeatedly discovered that the institution’s ability to promote economic growth and create jobs is weaker than what was anticipated and is needed. This was true for quantitative easing 2 and Operation Twist; it is now also the case for QE3.
They also know that signals to alter the course of policy can easily end up by, excessively and pre-emptively, tightening financial conditions and undermining growth and jobs. Just witness what happened between May and June when the mere mention of a taper disrupted the functioning of financial markets and pulled the rug under housing.
The result of all this goes beyond the shackles of a low-level growth equilibrium, persistent unemployment that risks getting more deeply embedded in the structure of the economy, and high and rising inequality. It also speaks to an increasingly unhealthy co-dependency between the Fed and financial markets.
Markets are now consequentially reliant on continued Fed accommodation, and this regardless of its impact on the real economy and top-line corporate revenue growth. And since unfortunately the Fed is essentially the only policy making entity working hard to promote employment, it ends up seemingly hostage to these markets given that they are such a critical component in the policy transmission mechanism.
The Fed is unable (some would – less charitably – say unwilling) to move either decisively forward or resolutely back. Instead, it appears mired in a classic state of active inertia. This is unlikely to change any time soon.
so it seems the El-Erian (and Pimco) thinks that the Fed is stuck in its present QE mode for the foreseeable future.
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