Mohamed A. El-Erian , Columnist

The Fed's Evolving Approach to Raising Rates

Amid signs of an economic slowdown, the central bank isn't afraid of tightening its monetary policy.

June 9, 2017 at 6:00 AM UTC

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

Expectations managed.
Photographer: Alberto Pizzoli/AFP/Getty Images

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With May’s jobs report just one of several signs indicating that the U.S. economy has hit a soft patch, the Federal Reserve may have reasons to be cautious and refrain from increasing interest rates when the Federal Open Market Committee meets next week. Indeed, that is what the Fed would have done in past years.

But U.S. monetary policy has been evolving and -- unlike the European Central Bank -- the Fed is no longer an institution looking for an excuse not to gradually tighten its stance. As such, the Fed will not only raise rates next week, but it will also continue to signal to markets its baseline expectations of another interest rate action later this year -- and, perhaps, the broad outlines of its approach to slowly shrinking its $4.5 trillion balance sheet.