Tags: Mohamed El-Erian | Federal Reserve | easing | economy

Pimco's El-Erian: Current Dow Not Supported by Economy

By    |   Thursday, 31 Oct 2013 10:39 AM

While financial markets are going gangbusters, with stocks reaching record highs Tuesday, economic growth is much more subdued. And it remains to be seen if the Federal Reserve's massive easing program can help the economy catch up to the markets, says Pimco CEO Mohamed El-Erian.

For now, "don't look for much change in the large disconnect between a buoyant Wall Street and a still-muted Main Street," he writes on CNBC.com.

"Over the longer term, however, only a broad-based and durable economic recovery can validate the current pricing of many financial assets."

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But El-Erian expresses some doubt. "As yet, there is insufficient evidence to assure us that Fed policies will indeed succeed where it matters most — on Main Street," he says.

The economy grew 2.5 percent in the second quarter, but has likely decelerated since then.

The Dow Jones Industrial Average jumped to an all-time high Tuesday on investor expectations that the Fed would maintain its current stimulus tactics. The Standard and Poor's 500 Index also set another high. The Dow rose Tuesday to 15,680.35, while the S&P 500 jumped to 1,771.95, its seventh record high this month.

The Fed on Wednesday extended its support for a slowing economy, vowing to keep buying $85 billion in bonds a month in an attempt to spur growth by keeping borrowing rates very low.

As for the Fed's policy statement Wednesday, "it didn't advance much our collective assessment of how the Fed sees its policy experiment evolve from here — particularly with respect to future benefits for the economy, longer-term collateral damage and unintended consequences," El-Erian writes.

Most economists don't expect the Fed to begin tapering its quantitative easing before March.

"Until the economic data strengthens, and strengthens meaningfully, I think expectations for tapering are going to remain subdued," Krishna Memani, chief investment officer at Oppenheimer Funds, told Reuters.

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While financial markets are going gangbusters, with stocks reaching record highs, economic growth is much more subdued and it remains to be seen if the Federal Reserve's massive easing program can help the economy catch up to the markets, says Pimco CEO Mohamed El-Erian.
Mohamed El-Erian,Federal Reserve,easing,economy
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2013-39-31
Thursday, 31 Oct 2013 10:39 AM
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