Fed ‘ forced’ central banks to ease policy: El-erian
The Federal Reserve’s record monetary stimulus has compelled central banks from Mexico to Japan to follow suit, said Pacific Investment Management Co.’s Mohamed El-Erian.
The Fed’s “artificially low” benchmark interest rate has put upward pressure on several currencies, threatening to erode the competitiveness of those nations’ economies, El-Erian, chief executive officer of the world’s largest manager of bond funds, said in a speech today in California. “Ultimately, they are forced — Mexico has been forced, Brazil has been forced, Korea has been forced, Japan has been forced — into doing exactly the same thing” as the Fed.
The Federal Reserve has kept its main interest rate near zero since December 2008 and is engaged in a third round of bond purchases to spur economic growth and reduce 7.7 per cent unemployment.
Mexico’s central bank unexpectedly cut its benchmark interest rate last week for the first time since 2009, while Haruhiko Kuroda, who was confirmed today as Bank of Japan governor, has pledged to do more to beat deflation.
“Central banks are carrying the majority of the policy burden, not by choice but by perceived necessity,” El-Erian said at a conference held at Stanford University.
Fed officials have defended their record easing to global policy makers as emerging markets tackled an influx of capital that has pushed up their currencies. Vice Chairman Janet Yellen said in October that other countries have the tools to manage excess capital flows.
The US central bank has kept its main interest rate near zero since December 2008 and is engaged in a third round of bond purchases to spur economic growth and reduce 7.7 per cent unemployment. As a result, the Fed has become the equity investors.