The Federal Reserve’s quantitative easing policy failed to meet the “ultimate objective” of boosting employment and economic growth, said Mohamed El-Erian, CEO at Pacific Investment Management Co.
While the bond-purchase program pushed investors into higher-yielding assets such as stocks, the “transmission mechanism” to lower unemployment by driving more money into the economy didn’t work, El-Erian (left) of PIMCO, the world’s biggest manager of bond funds, said in a radio interview on “Bloomberg Surveillance” with Tom Keene.
“If success is defined in terms of the ultimate objective, which is pushing up valuation in order for people to spend more on goods and services and therefore get the economy to grow and unemployment to come down rapidly, then the answer is no,” El-Erian told Keene from the company’s Newport Beach, Calif., headquarters
As Bloomberg notes, the U.S. central bank began the second round of asset purchases, known as QE2, in November after buying $1.7 trillion in securities through last year, increasing the amount of money in circulation to prevent deflation. The central bank’s $600 billion in purchases of Treasuries are due to end June 30.
“Simply throwing more money at the economy doesn’t seem to be enough,” El-Erian said. “Part of the unintended consequences is not only did we get good inflation, which is higher equity prices, higher asset prices, but we got bad inflation, which is higher commodity prices.”