The Bank of England’s Wednesday reversal where it announced it would start buying bonds to ease market stress shows the bind central banks find themselves in today, and the markets may end up with a rougher landing anyway, Mohamed El-Erian said Wednesday. “The longer you stay in this la-la land of QE (quantitative easing), floored interest rates, dislocated markets, funny interventions, distorting asset allocations … the harder the exit,” the Allianz economic advisor and former CEO of bond giant Pimco said on CNBC’s ” Squawk Box ” shortly after the announcement. The central bank said it would begin temporarily purchasing long-dated U.K. government bonds “on whatever scale necessary” to ease markets. “This is responding to the risk of market malfunction,” said El-Erian. “It goes counter to what they need to do to for inflation so it highlights the inconsistency of monetary policy. … It was about to do QT (quantitative tightening) … it announced that it would hike even more aggressively … and now it’s injecting liquidity.” The British pound has fallen to a record low versus the U.S. dollar, panicking markets about a currency crisis in the country and helping to send global stock indexes deeper into bear market territory. The S & P 500 touched a new 2022 low on Tuesday. While El-Erian said the U.S. could benefit in the short term from this Bank of England move as investors seek out a global safe haven, he said the Federal Reserve could find itself in a similar situation where it has to choose between fighting inflation and soothing markets. The latest Bank of England action shows the “fragility of markets” and how we have to overall reduce our dependency on central banks, El-Erian said.
