El-Erian would be safe pick for Fed Vice Chair
His experience with classical economics and global investing makes him a strong asset.
Forming consensus in Washington these days can be a tall task. Yet when it comes to the leadership of the U.S. Federal Reserve, it is important that we elevate pragmatism over politics. The void left by the retirement of Stanley Fischer from the Fed left big shoes to fill, but it is difficult to think of a better candidate to fill those shoes than Mohamed El-Erian.
El-Erian has had a long and renowned career in both private enterprise and public service. He is a pragmatic investor and global thinker. Educated at Cambridge with a Ph.D. from Oxford, El-Erian became deputy director of the International Monetary Fund (where he worked with Fischer), ran the emerging markets team at Pimco, was named CEO of Harvard Management Company, and ultimately returned to Pimco as CEO and co-CIO. El-Erian also taught at Harvard Business School and served under President Barack Obama as chair of the Global Development Council.
NATURAL COMPLEMENT
He is an intellectual heavyweight with a deep background in classical economics, a natural complement to Jerome Powell, who was recently nominated to succeed Janet Yellen as Fed Chair. Both Powell and El-Erian are centrists who can be expected to support Yellen efforts to normalize monetary policy in the wake of unprecedented intervention under the leadership of former Fed Chairman Ben Bernanke.
Bernanke’s efforts to right the economy in the wake of the financial crisis were effective. But monetary policy – which is typically used as a short-term stimulus – was never replaced by fiscal policy, and so monetary policy had to carry the weight of the recovery from one of the deepest recessions our country has ever faced.
The result: a massive Fed balance sheet supporting a long-running bull market that has driven up asset prices across the board, and with it, the potential for significant inflation. Unwinding the Fed’s balance sheet expansion is a tricky task, but one that is necessary in order to return to a more normalized, sustainable interest rate environment and economy.
RARE TRAITS
The job of Fed Vice Chair is one of considerable importance, and El-Erian’s background seems perfectly suited to the role. He combines several traits rarely found in a single individual: he is a classically trained economist, he has national and international relationships, and he has demonstrated tremendous leadership skills in both public and private settings.
In a role where his influence and decisions will impact the lives of hundreds of millions of people globally, the ability to synthesize both the theoretical and practical implications of policy decisions would be a valued addition to decision making in Washington.
One might argue that uncertainty is the only constant in our economy, but when it comes to global financial markets, certainty carries a lot of weight. Investors likely would cheer the selection of Mohamed El-Erian as Fed Vice Chair, a pragmatist and globally-respected leader who could help steer our economy towards, in El-Erian’s own words, a “beautiful normalization.”
Gary E. Zimmerman is Managing Partner of Six Trees Capital LLC and Founder of MaxMyInterest.
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