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Fed Chair Debate Has Entered “Silly Season,” Could Damage Economy: El-Erian

Daily Ticker

Fed chairman Ben Bernanke will be handing over the keys to someone in January to oversee the Fed's close to $4 trillion in assets. The stakes are high. So who will President Obama nominate?

Mohamed El-Erian, CEO and co-CIO of Pimco, says it's up to the President. More importantly, El-Erian insists the decision must be made in the next few weeks to reduce uncertainty in the markets. Until then, he says "silly" rules the day when it comes to the debate over contenders for the central bank's top spot.

Related: Beware the Curse of the New Federal Reserve Chairman

"The silly season is to focus on the small differences between them and amplify them to such an extent that they start taking over the narrative," El-Erian tells The Daily Ticker in the accompanying video. "And if that continues to happen... whoever ends up being selected will have to deal with issues that have been blown completely out of proportion."

Related: Larry Summers: Too Wrong for Too Long to Run the Fed, Task Says

He's referring to the ongoing discussions in the media and in Washington about Larry Summers and Janet Yellen, the two top candidates for Fed Chair. Whether he's too "prickly" and she's too "professorial" -- or whether he's too much of an "insider" and she's too much of an "outsider." The list goes on and on, but El-Erian says the small details ignore the bigger picture.

"A central bank uses indirect instruments," he says. "The credibility of a leader of a central bank is very important. What has happened in the debate is an evolution that risks undermining the credibility of whoever is selected as the next Fed chair."

Related: Equity Markets Treading Water with Downside Risk Ahead: El-Erian

That could be catastrophic. El-Erian wrote in The Washington Post: "If this continues, there is a material risk that exaggerations and tangents could undermine the country by raising unwarranted questions about leadership, particularly when the next Fed chair may need to calm panicky financial markets, take controversial steps, persuade foreign central banks to cooperate or suddenly lead the private sector in a new direction."

At the end of the day, the "silly season" shows just how polarized Washington is right now, according to El-Erian.

And that's too bad. Because at the end of the day, El-Erian thinks Summers and Yellen are indeed the top candidates and ready to fill Bernanke's shoes. "Both of them are really qualified... we couldn't be in a better position."

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