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Mohamed A. El-Erian

Fed Needs to Take Action Despite Its Framework

The central bank’s outcome-based approach exacerbates economic and financial risks and needs to be addressed now.

Don’t get bogged down.

Don’t get bogged down.

Photographer: Susan Walsh-pool/Getty Images

Federal Reserve officials, confronting developments and an outlook they seem to have not anticipated, face tricky decisions as they finalize their policy deliberations on Wednesday. These center on updating their individual projections and converging on whether — and if yes, how — to start a necessary policy pivot that unfortunately conflicts with the framework the central bank adopted recently to guide and signal monetary policy intentions.

If they were market traders or CEOs of competitive private companies, the answer would be clear: Start reducing exposure to a now more risky posture by moving forward with a partial pivot in light of the changed circumstances, thereby keeping their options open and better balancing risk. That is not what is likely to transpire, however. Instead, the Fed will most likely fall short of what is required and risk exacerbating the challenges it — and the economy — face in the longer term.