Mohamed A. El-Erian, CEO & CO-CIO of PIMCO is sanguine on the ‘progress’ made by Washington:
the good news is not the result of a visionary solution that reconciles, even in a limited fashion, material differences of views on the size and scope of government; nor does it fundamentally realign political incentives in a constructive manner
- bickering Congress has created a temporary window for — at least in theory — more rational debate and decision-making
- Global markets are right to celebrate the removal of a potential economic catastrophe.
Meanwhile, and notwithstanding the earlier taper talk, the Fed may now have no choice but to stay longer in its intense policy experimental mode – due both to the likelihood of weaker data and to a perceived need to take out insurance for the economy against future political dysfunction.
We should not be surprised if both companies and individuals were to consider postponing some important decisions, with a few even opting for greater “self-insurance.” This speaks to the risks of lower consumption, less buoyant hiring and fewer investments in new plant and equipment – all ahead of the important holiday purchase season.
