Mohamed El-Erian, the CEO and co-CIO of Pacific Investment Management Company, said that the Federal Reserve’s stimulus plan has influenced central banks across the globe to follow a similar course of action.
El-Erian said that the Fed’s “artificially low” benchmark rate has put pressure on other currencies, thereby threatening the competitiveness of those nations’ economies, according to Bloomberg.
“Ultimately, they are forced—Mexico has been forced, Brazil has been forced, Korea has been forced, Japan has been forced—into doing exactly the same thing [as the Fed],” El-Erian said, Bloomberg reports.
Last week, Mexico’s central bank cut its benchmark rate for the first time since 2009. Haruhiko Kuroda, who was recently confirmed as the governor of the Bank of Japan, has also pledged to increase efforts aimed at reducing deflation.
“Central banks are carrying the majority of the policy burden, not by choice but by perceived necessity,” El-Erian said, according to Bloomberg.
The Fed has maintained its interest rate at near-zero since December 2008 and is engaging in a bond-buying program intended to spark economic growth and bring down the unemployment rate. El-Erian said that, as a result, the Fed has become equity investors’ “best friend” and a “price-setter” in financial markets.
Additionally, El-Erian said that Fed Chairman Ben Bernanke made a turnaround in 2010 and began using “imperfect tools,” creating uncertainty about the balance of benefits and costs.
“It’s the equivalent of a pharmaceutical company that has no choice but to put medication on the market even though the medication hasn’t been clinically tested,” El-Erian said, Bloomberg reports. “That is why the Fed talks a lot about the costs [of the quantitative easing program].”