El-Erian Says Yellen Remarks More Dovish Than He Was Expecting

  • Economist says stage was set for more hawkish stance
  • ‘She didn’t go there,’ El-Erian says of Fed chair’s remarks

Takeaways From Yellen's Commonwealth Club Speech

Mohamed El-Erian, Allianz SE’s chief economic adviser, said Federal Reserve Chair Janet Yellen took a less aggressive stance than he thought she would on tightening monetary policy.

Her remarks Wednesday were “somewhat more dovish than what I would’ve expected given what’s happening on the ground in the economy,” El-Erian said in a Bloomberg Television interview.

Yellen said that “it makes sense to gradually reduce the level of monetary policy support” and that the timing of the next interest-rate increase “will depend on how the economy actually evolves over coming months,” according to the text of a speech to the Commonwealth Club in San Francisco. Federal Open Market Committee participants estimated in December that they would raise borrowing costs by a quarter percentage point three times this year, according to their median projection.

The U.S. unemployment rate has dropped steadily in recent years and stood at 4.7 percent in December, near the lowest in a decade. Yellen said Wednesday that the U.S. is near maximum employment. Her comments suggest that she would welcome changes in fiscal policy and structural reforms to help bolster the economy, reducing the burden on central bankers, according to El-Erian.

“She recognizes structural headwinds to this economy, but then didn’t imply what that means for the ineffectiveness of excessive reliance on monetary policy,” said El-Erian, who is also a Bloomberg View columnist. While the stage may have been set for a more hawkish signal, “She didn’t go there.”

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