“Unusual central bank activism is becoming less effective overall”

“Central bankers are becoming more nuanced and thus differentiating between the trio of policy willingness, ability and effectiveness. They are telling us that they are willing to do more if conditions deteriorate; the ability is there though impacted by imperfect policy instruments; and effectiveness is not what it used to be.”

The above commentary was published today this afternoon by Mohamed El-Erian, co-chief investment office of PIMCO, in an article via CNBC.  There, El-Erian presented his thoughts on Federal Reserve Chairman Ben Bernanke’s congressional testimony this morning.

Additional highlights from El-Erian’s notes included:

“Certainly in his written submission, but also in the oral responses to questions, Bernanke is trying hard to shift the focus from monetary policy to other areas (particularly fiscal). This speaks to his lack of specificity on future monetary policy actions and to his comment that he would feel much more comfortable if Congress were to take some of the policy burden off the Fed.”

“If this interpretation is correct, Bernanke is following the example of Mario Draghi, the president of European Central Bank. Draghi has been unusually vocal in recent weeks about the need for politicians in Europe to step up to the plate and deliver on their policy responsibilities; and he has been clear about the risk that relying just on the ECB may, in my words, again end up providing a bridge to nowhere.”

“This is all consistent with the growing view in both academic and policy circles that unusual central bank activism is becoming less effective overall. Indeed, Bernanke referred to this in the Q and A. And this relates to both lower expected benefits and the risk of greater collateral damage and unintended consequences.”