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Duration: 3:44
Posted: 1 hour ago
Mohamed A. El-Erian Bloomberg Opinion Columnist
It probably won’t be possible unless the economy worsens considerably or the central bank slips again.
The World Economic Forum is gathering again and the list of economic problems facing the world is long and getting longer.
Worries about growth and earnings are joining concerns about higher interest rates and tightening financial conditions.
The central bank must make progress on four critical issues to regain credibility and stabilize the economy.
The reduction will have significant implications for the economy and financial markets. Here are some key issues to watch.
Russia’s invasion has amplified six significant evolutions in finance and the global economy.
Its credibility eroded, the central bank appears to have a choice between risking a recession or prolonging inflation.
The central bank dug itself into a hole, and the way out means risking either a recession or future price and financial instability.
Economics, finance and related policies aren’t the main drivers of stock prices now, and the war in Ukraine offers only uncertainty.
The West’s response to Russia’s invasion will most likely have significant consequences for the financial system and investors.
The Fed’s own missteps on inflation have left it with a poor set of choices as geopolitical crisis threatens a stagflationary shock.
It’s not just the Fed. Other structural factors are in play that have the strong potential to roil equities.
The central bank should have stopped its asset purchases immediately and given a clearer signal on rate increases.
A disconnect increases the risk of a policy mistake and undue damage to livelihoods.
Analysts have revised their 2022 expectations to include the end of large-scale asset purchases, four rate increases and the beginning of balance-sheet contraction. It’s a risky hurry-up offense.
The direction of markets will depend largely on whether they truly believe the central bank can follow through effectively on withdrawing liquidity.
Investors were relatively unfazed by the year’s two big economic surprises. But the effects of rising prices and Beijing’s corporate clampdown could play out in unexpected ways next year.
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