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Mohamed A. El-Erian

The Rising Risk of Central Bank Instability

Investors may be underestimating the chance of a sudden shift in monetary policy.
Speaking out.

Speaking out.

Photographer: Elijah Nouvelage/Getty Images

Separate comments last week from European Central Bank President Mario Draghi and Federal Reserve Chair Janet Yellen confirmed an ongoing change in the policy configuration facing their two systemically important central banks: The recognition of a transition in both economic conditions and prospects, along with questions about robustness and durability.

For now, their response is to maintain a stimulative direction to their policies, and to use verbal guidance that avoids rocking the boat. Although it's consistent with investor expectations, the forward-looking policy path may not be as secure and smooth as market pricing would suggest, however.