Tags: pimco | El Erian | Fed | Boost | Economy

El-Erian: Fed Can Do Little Now to Boost Economy

By    |   Tuesday, 10 Aug 2010 11:16 AM

With the U.S. economic rebound looking more and more tenuous, many investors have come to hope that action from the Federal Reserve can save the day.

Those hopes are misplaced, says Mohamed El-Erian, co-CEO of money management titan Pimco.

"Fed policy is not enough,” he told CNBC. “You need to do more than that to get off that road."

So what’s the solution to our economic predicament?

"First, selling a vision, a long-term vision as to what the policy response is to restore growth and employment,” El-Erian said. “And second, to fill it out with proper structural policies."

With fiscal policy apparently stuck on hold, experts inside and outside the Fed have raised the possibility that the central bank will expand its quantitative easing. That could involve reinvesting proceeds from its maturing mortgage bonds back into the market or cutting interest rates on excess bank reserves.

But most experts expect little action out of the Fed’s Federal Open Market Committee meeting today.

"First, it's very difficult to get consensus on the FOMC,” El-Erian said.

“Second, there's a realization that policy effectiveness is going down. You get less outcome for the same unit of reaction. And third, it's the wrong thing to focus on."

Deutsche Bank economists agree that the FOMC won’t move today. Financial and economic recovery “will embolden the Fed to keep policy on its present course,” they wrote in a report obtained by Business Insider.

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With the U.S. economic rebound looking more and more tenuous, many investors have come to hope that action from the Federal Reserve can save the day. Those hopes are misplaced, says Mohamed El-Erian, co-CEO of money management titan Pimco. Fed policy is not enough, he...
pimco,El Erian,Fed,Boost,Economy
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2010-16-10
Tuesday, 10 Aug 2010 11:16 AM
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