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Will politics force central banks to extend monetary stimulus?

*Financial Times, by Mohamed El-Erian, February 21, 2013

”The only way the Fed will abandon QE any time soon is if America’s growth rate and job creation reach ‘escape velocity.’  For this to happen, Congress would need to encourage tailwinds rather than headwinds.  Absent that, it will take some time for the economy’s ongoing endogenous healing to attain critical mass.

Since Congress doesn’t look to be getting its act together any time soon, the Fed will face an uncomfortable choice at every policy meeting in the next few months: either continue to use imperfect policy tools and risk greater collateral damage on a widening front; or stop and undermine the economy’s momentum.

Today’s world of dysfunctional politics is one that pushes central banks further away from their comfort zone and excludes the best possible responses.  The resulting inconsistencies can only be resolved through a more comprehensive policy approach that deals directly with the west’s challenges of too little growth, too much debt and too polarised a political discourse.  In the meantime, central banks will have no choice but to opt for what they perceive as the lesser of two evils — that of maintaining a visibly imperfect policy stance.”

*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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