Pimco CEO: Bernanke Must Avoid 'QE3' In Friday Speech -FT

The head of bond-fund giant Pimco says Federal Reserve Chairman Ben Bernanke should avoid any suggestion the U.S. central bank intends to pursue new purchases of Treasury bonds and instead use a much-anticipated Friday speech to press for economic reforms.

Mohamed El-Erian, in an opinion essay published Thursday on the Financial Times' website, wrote that Bernanke would likely encounter little political support for extending the Fed's policy of "quantitative easing," dubbed "QE3." Moreover, "expectations are far ahead of what he can reasonably deliver in terms of economic outcomes," El-Erian added.

The chief executive of Pacific Investment Management Co. said Bernanke's speech Friday at a Fed event in Wyoming could best be used as a forum from which to launch fresh efforts to fix the struggling U.S. economy.

"Rather than embark on another policy initiative ('QE3') with questionable net benefits, it would be better for Mr. Bernanke to use his Jackson Hole speech to reframe the national policy debate and, in the process, set the stage for President Barack Obama's key economic announcements on September 5.

"The time has come for the American policy narrative to be much more explicit about the structural challenges facing the country and, critically, set the stage for proposing to Congress a comprehensive package of self-reinforcing reforms. Mr. Bernanke can facilitate this by using his Jackson Hole remarks as the warm-up act for Mr. Obama's critical speech on the economy next month. Anything beyond this would run the risk of the Fed building another costly bridge to nowhere."

Website: www.ft.com

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