Tags: El-Erian | Fed | policy | economic

Pimco's El-Erian: Strong Economic Data 'Supportive of Fed's Policy Bet'

By Dan Weil   |   Tuesday, 12 Nov 2013 12:59 PM

Last week's buoyant U.S. GDP and jobs numbers raise hope that the Federal Reserve's massive easing program will succeed, says Pimco CEO Mohamed El-Erian.

The government reported last week that GDP expanded 2.8 percent in the third quarter and that the economy gained 204,000 jobs in October.

"The combination of [these data] has been a lot more supportive of the Fed's policy bet," El-Erian writes in Fortune.

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And what is that bet?

"Over the last few years, the Fed has repeatedly inserted a powerful wedge between market prices and fundamentals" with all its easing steps, El-Erian explains.

"Its hope, and that of many of us, is that buoyant market prices would pull up sluggish economic fundamentals, thereby also allowing for orderly policy normalization."

But the fear is that the Fed's policy will bomb, he says. Indeed, some say it already has.

Economic strength must be sustained to prove the doubters wrong, El-Erian notes, "so that materially stronger fundamentals validate and enhance current market prices, while providing for a return to less experimental policies."

Iconic investor Jim Rogers, chairman of Rogers Holdings, is one of those who thinks the Fed already has failed.

"This is absolute insanity what's going on," he tells Reuters TV.

"It's not just the Fed, it's central banking. This is the first time in recorded history that all major central banks are printing a lot of money trying to debase their currency. The world's floating around on a huge artificial sea of liquidity."

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