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Mohamed A. El-Erian

Fed Should Resist Market Pressure to Do More

The consequences of additional action outweigh the potential benefits.

Sit tight.

Sit tight.

Photographer: Daniel Acker/Bloomberg

In listening to market chatter urging the Federal Reserve to do more, I’m reminded of two simple insights I was exposed to years ago that have stayed with me. They don’t help predict what the Fed will end up doing, but they help shed light on the possible consequences.

Early on in my career at Pimco, I remember Bill Gross, the firm’s founder and legendary investor, reminding portfolio managers that “there are times when the best thing to do is to do nothing.” It’s important advice as most PMs are conditioned to continuously look for opportunities and react accordingly. They naturally get fidgety when market conditions dictate that the best thing to do is simply wait. The cost of ignoring Gross’s advice ranges from unnecessarily wasting money on bid-offer spreads to ending up with less-optimal portfolio positioning.