iBankCoin
Joined Nov 11, 2007
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El-Erian: Don’t Be Fooled by the Fed’s Placid Facade

“One of the unwritten rules of modern central banking is that, unless compelled by events on the ground, officials should refrain from making big policy changes during the summer. With many traders on holiday, any sudden moves risk destabilizing markets.

Look for the Federal Reserve to abide by this rule when it meets Tuesday and Wednesday — and the European Central Bank to do the same in early August. Janet Yellen and her colleagues on the policy-making Federal Open Market Committee will maintain their well-telegraphed, gradualist approach, reducing monthly bond purchases by another $10 billion, signaling no urgency in raising interest rates, and reminding us of the importance of looking beyond the unemployment rate to understand what’s happening in the job market.

Still, behind this comforting “steady as she goes” facade, Fed officials will be dealing with five complex and inter-related issues, the resolution of which will be months in the making:

To what extent is the central bank’s policy approach increasing the risk of financial instability down the road? This question is preoccupying a growing number of regional Fed presidents…..”

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