What the Fed Will and Won't Do This Week
Mohamed El-Erian
President @ Queens' College, Cambridge | Finance, Economics Expert
The Federal Reserve's policy meeting this week will be closely watched, particularly after the stimulative measures taken by the European Central Bank last week.
Here are some steps that U.S. central bankers will and won't take, and particularly those of greatest interest to financial markets:
- Fed officials will note the continued recovery of the U.S. economy, led by strong job creation, but without sounding the all-clear on wages and inflation (both remain too low).
- They will reiterate concerns about global economic weakness but refrain from upgrading the risks of spillover onto the real economy at home.
- They will seem somewhat comforted by the return of relative financial stability, especially after the volatility a few weeks ago that again illustrated the fragility of investor sentiment both in the U.S. and elsewhere.
- They will leave the Fed's interest rate structure as is, and they will make no changes to the policy governing the use of its balance sheets.
- They will guide the markets toward the possibility of more interest rate increases than are currently priced in by traders and investors, but they will do so in a gentle manner.
- They will again highlight the rather unusual uncertainty facing both the economy and policy making, including by stressing the need for careful monitoring of data and agile policy responses.
Putting this all together, the Fed once again will emphasize both its dependence on data and its policy conditionality. This, however, will be accompanied by careful signals that -- unlike other systemically important central banks in China, Europe and Japan -- the Fed remains inclined to cautiously pursue its path of gradually higher interest rates and monetary policy normalization.
This post originally appeared on Bloomberg View.
Mohamed A. El-Erian is the former CEO/co-CIO of PIMCO. He is Chief Economic Advisor at Allianz and member of its International Executive Committee, Chair of President Obama’s Global Development Council and author of the NYT/WSJ bestseller “When Markets Collide.” His most recent book, “The Only Game in Town: Central Bank, Instability and Avoiding the Next Collapse,” is also a NYT bestseller and is available now.
Follow him on Twitter: @elerianm. And get all of his content on Facebook.
Consultant at Self-Employed
8 年I am not a Financial expert but concerned at small project level. The instability and avoiding a collapse is in favor of all in general and experts should work to avoid any down turn.
self employed
8 年IF YOU WANT THE BANKS TO LEND - YOU LEND OUT FREE MONEY TO POOR PEOPLE THAT YOU DON,T CARE IF YOU SEE AGAIN - NOT TO RICH PEOPLE WHO WILL ONLY BOOK IT AS INCOME ANYWAY 2 YEARS LATER .
--
8 年It' s a pity
MSc. Economics from City University London
8 年This economist who thinks that the fed will be able to cautiously pursue its path of gradual increase in interest rates in the face of other central banks -Japanese and European - adopting the policy of negative interest rates is obviously living in Financial Cuckoo Land.