Do it now .....!
ref :- "Powell must be bold on policy at Jackson Hole" , Mohamed El-Erian's Market Insight in The Financial Times, Companies and Markets
On the move today so no time for the full spiel, but we felt we should just flag up this piece by the much-respected Mr El-Erian.... especially after speculating what may or may not come out of the Jackson Hole symposium in yesterday's blog.
Mr El-Erian is obviously not one those who feels that making the conference "virtual" should discourage Fed Chairman Powell from making any policy announcement. Moreover, he feels that now is the time for the Fed to signal at least a start to a gradual tapering of its extraordinary stimulus measures.
You couldn't really call Mr Powell or his chief lieutenants either particularly hawkish or dovish, but on balance you might conclude that they sit marginally on the cautious side of the fence. That's been totally understandable in the circumstances, but we're told that now is the time to tap the brakes on the Fed's largesse. The arguments in short:
For: The Fed has two OFFICIAL mandates --- Employment and Inflation. The data shows that employment numbers continue to rebound at a pretty spectacular rate, and that inflation remains a big worry. Consumer price rises may have steadied but at highly elevated levels, and producer prices continue to climb. Both mandates argue for some sort of action.
Against: The latest data do not reflect the disruption and danger posed by the latest wave of the Delta variant, which is ongoing and may escalate. It could be that tightening now could turn out to be the wrong action at exactly the wrong moment.
But Mr El-Erian offers two more points to consider: On balance, Fed governors are siding more and more with making a start to stimulus withdrawal, and NOT to act risks disunity at the Fed -- that would be bad news indeed. And perhaps even more importantly, like it or not the Fed has acquired a third, UNOFFICIAL mandate -- to foster market stability and orderliness. If it foregoes the start of action now, but then has to slam on the brakes more aggressively at a later date, that risks a bloody market reaction. When you consider how extended asset valuations are, and how illiquid these markets are in times of panic, a meltdown rather than a brief and managed reversal would seem to be on the cards.
You should take a look at Mr El-Erian's piece if you can --- it's brief and, as ever, to the point.