Pimco’s El-Erian: ‘Best Fed Can Do is Postpone Storm’

Tuesday, 07 Aug 2012 01:45 PM

By Dan Weil

The Federal Reserve is impotent when it comes to bringing the economy back to health now, says Mohamed El-Erian, chief executive officer and co-chief investment officer of Pacific Investment Management Co.

“The best the Fed can do is to postpone the storm a little,” he told CNN Money. "It doesn’t have the tools to promote growth and to deal with our structural issues.”

The central bank is hesitant to move quickly – it refrained from additional easing at its meeting last week – partly because it’s worried about what’s happening overseas, particularly in Europe, El-Erian said.
And, “every time the Fed does something it creates problems somewhere else,” he said.

On the labor front, while Republican presidential candidate Mitt Romney has promised to create 250,000 jobs a month if he becomes president, “there’s no killer app to create jobs,” El-Erian said.

“You need simultaneous movement on a number of fronts – the functioning of the labor market, housing market, credit markets, infrastructure, fiscal reform.

Two realities stand in the way of that, El-Erian said. “First and foremost our political system isn’t allowing us to converge on a common analysis let alone a solution. And second, the international environment is tough. Europe is having a major crisis.”

Some at the Fed disagree with El-Erian’s point that there is little the central bank can now do for the economy.

Boston Fed President Eric Rosengren told The New York Times that the central bank should increase its mortgage bond and Treasury holdings until the economy rebounds.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did