Tags: El-Erian | central banks | policy | economies

El-Erian: Global Central Banks Will Now Split on Policy

By    |   Wednesday, 26 February 2014 11:43 AM

After basically easing in unison since the 2008-09 financial crisis, central banks around the world are set to diverge on policy, as their economies grow at different speeds, says Mohamed El-Erian, outgoing CEO of fund giant Pimco.

While the split makes sense, it carries some risk, he writes in the Financial Times.

In order of policy tightness, the big four central banks will shake out like this: the Bank of England will be the tightest, then the Federal Reserve and the European Central Bank, while the Bank of Japan will be the loosest, El-Erian predicts.

Editor’s Note:
38 Trades That Could Turn $1,000 Into $49,000

"The prospects for this more varied mix of central bank policies is, at least for now, consistent with underlying trends in real and nominal gross domestic product in each of the economies," he explains.

"But its viability can only be ensured if other components of the overall economic policy stance evolve appropriately in supporting the still-elusive (and much-needed) shift to more sustainable private sector-led growth."

Without that, major currency adjustments and general instability in financial markets could result, El-Erian argues.

"The result of which would likely force central banks into renewed policy convergence, or what Michael Spence, the Nobel Prize-winning economist, once labelled a 'non-cooperative co-operative game.'"

Some experts criticize the Fed for its massive easing program. James Grant, editor of Grant's Interest Rate Observer, says that stocks will be a victim of that policy.

"My fear is that interest rates are suppressed, therefore earnings are inflated," he tells CNBC. "So when rates go up, . . . the hall of mirrors is shattered, and we look at each other and see what actually is real rather than what the Fed wants us to believe."

Editor’s Note: 38 Trades That Could Turn $1,000 Into $49,000

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After basically easing in unison since the 2008-09 financial crisis, central banks around the world are set to diverge on policy, as their economies grow at different speeds, says Mohamed El-Erian, outgoing CEO of fund giant Pimco.
El-Erian,central banks,policy,economies
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2014-43-26
Wednesday, 26 February 2014 11:43 AM
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