Fed is responsible for bond market turmoil and must cut asset purchases sooner, says Mohamed El-Erian

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Mohamed El-Erian, Senior Economic Advisor to Allianz.
  • The fault of Tuesday’s rise in Treasury yields is at the feet of the Fed, Mohamed El-Erian wrote in an op-ed.
  • His comments came just after the 10-year Treasury yield hit 1.5%, hitting a three-month high.
  • El-Erian said the Fed needs to give serious thought to its timeline for reducing asset purchases.
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The blame for Tuesday’s sharp rise in Treasury yields is at the Fed’s feet and should prompt a rethinking of its cut schedule, Mohamed El-Erian wrote in a Financial Times editorial on Wednesday.

The president and economist of Queens’s College has warned that increasingly volatile treasury markets could spill over into other financial sectors, threatening the real economy.

“The more rate volatility increases, the greater the risk of suddenly ‘gaping’ higher yields,” El-Erian wrote. “The larger the gap, the greater the threat to market functioning and financial stability, and the greater the risk of stagflation – the combination of rising inflation and weak economic growth.”

His comments came just after the 10-year Treasury yield climbed 1.5% from 1.3%, hitting a three-month high.

El-Erian said bond yields, often called the world’s most crucial market signal, have long been primarily determined by central banks. Their massive asset buying programs, known as quantitative easing or QE, have “distorted” markets and made price signals less valuable.

Frequent skeptical of the Fed in recent months, El-Erian said the U.S. central bank needs to give serious thought to its schedule to curtail asset purchases, which last week announced it would begin towards the end of the year. ‘year.

“On the contrary, the longer the Fed waits, the more markets will question its understanding of ongoing inflationary pressures,” he warned, adding that any resulting market turmoil would risk “undermining a recovery that must be strong. , inclusive and sustainable “.

El-Erian, who has held a variety of high-level positions, rose to prominence as first deputy to Pimco’s “King of Obligations” Bill Gross before going public in 2014.


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