Tags: El-Erian | lowflation | bond | yields

El-Erian: Concern About 'Lowflation' Pushes Bond Yields Lower

By    |   Tuesday, 20 May 2014 09:50 AM

Signs of economic weakness in Europe and the United States have helped spark lower bond yields recently, says former Pimco CEO Mohamed El-Erian, now chief economic adviser to Allianz.

Global bond yields have slid in recent weeks, with the 10-year Treasury yield hitting a 6 ½-month low of 2.47 percent last week.

The eurozone economy grew only 0.8 percent annualized in the first quarter. And in the United States, industrial production fell 0.6 percent in April.

Editor's Note:
New Warning — Stocks on Verge of Major Collapse


"Persistent concerns about the failure of American and European growth to lift off have been amplified in recent weeks by spreading worries about 'lowflation,'" he writes in the Financial Times.

"That is, inflation that is too low for too long and, as a result, risks pulling the rug from underneath inflationary expectations."

In addition, central banks have signaled they will continue to keep short-term interest rates low to boost growth.

But El-Erian thinks central banks should hold off on additional easing. "This time, we should not look to another round of policy experimentation by hyperactive central banks as sufficient to stabilize markets, promote healthy growth and chop the tail risk of deflation," he writes.

A more balanced fiscal-monetary policy mix would be helpful, El-Erian explains.

"What is needed is a continuing healing of western economies, supported by a more balanced fiscal-monetary policy mix and deeper productivity-enhancing measures, including higher infrastructure investment."

To be sure, not everyone thinks 'lowflation' is the issue. If the Fed doesn't withdraw its easing fast enough when the economy rebounds, inflation may rise, Diana Furchtgott-Roth, senior fellow at the Manhattan Institute, writes in an article for MarketWatch. "This may be happening already."

Consumer prices rose 0.3 percent in April, the biggest increase in 10 months, and producer prices jumped 0.6 percent.

Editor's Note: New Warning — Stocks on Verge of Major Collapse

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Signs of economic weakness in Europe and the United States have helped spark lower bond yields recently, says former Pimco CEO Mohamed El-Erian, now chief economic adviser to Allianz.
El-Erian, lowflation, bond, yields
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2014-50-20
Tuesday, 20 May 2014 09:50 AM
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