By Tom Bradley

Mohamed El-Erian, the CEO and Co-chief Investment Officer of PIMCO, is a regular contributor to the Financial Times. In his piece today, he opines that the U.S. Federal Reserve will not seek an early end to quantitative easing (QE). For me, the most interesting part of the article was not the reasoning behind his view, but the preamble. He states something that has been lost in the constant commentary about the Fed and what it’s going to do next.

He says, “As a result of varying degrees of political dysfunction, monetary institutions have been thrust into leadership roles for which they find themselves ill-equipped. As such, they are pursuing too many objectives using tools that are too few, too indirect and too imperfect.”

Throughout my career, I’ve always found Fed watching to be ridiculous. As Mr. El-Erian says, trying to manage an economy with interest rates and liquidity (the tools) is like trying to sew a silk blouse wearing ski mitts. Way too much is expected of the Fed and the short-term market volatility its announcements cause is always overdone (i.e. a big deal today, forgotten tomorrow).

Admittedly, as the Fed and other central banks have significantly expanded their balance sheets and pumped liquidity into the system, their impact has been far greater. But we shouldn’t kid ourselves - the Fed’s impact on an important sector like housing (as an example) is about 8th on the list of important factors, coming after prices, inventories, consumer debt levels, household formation, demographics, rental rates and the mood of the local bank’s CEO. Oh, I forgot to mention the weather. I guess that bumps Fed actions down to number 9.

The QE programs have been an important element of the post-crisis recovery, but they are losing their effect now, such that we’re back to where we were early in my career. In other words, the Fed is a big part of the news flow, but a small part of what drives portfolio returns. As Mr. El-Erian said, it has more objectives today, but its impact is ... like, totally 80’s man.