QE3 “Very Unlikely,” Says by PIMCO’s El-Erian

Mohamed El-Erian, CEO and co-CIO of PIMCO, said that is “very unlikely” the Federal Reserve and Chairman Ben Bernanke will launch a third round of quantitative easing, i.e. QE3.

El-Erian argued this week that if QE3 were to be implemented, the balance of costs and benefits has shifted against the Fed, by “lowering the potential gains and increasing the probability of collateral damage and adverse unintended consequences. ”

The PIMCO CEO went on to say that as the Fed's balance sheet has “already ballooned, there is growing unease in Washington about an unelected group of officials being so able to implement de facto fiscal measures with few checks and balances. I suspect that Fed officials realize this, and will likely resist further steps that would significantly erode their operational autonomy.”

Lastly, El-Erian pointed to “surges in capital flows to other countries.” Along with “weakening the dollar, such surges complicate economic management in the rest of the world. They fuel inflation and credit bubbles, and force countries to counter with monetary policy tightening.”

El-Erian’s comments stand in stark contrast to many other well-respected investors, including Eric Sprott and Marc Faber, who believe Bernanke and the Fed will launch many more rounds of QE because of the remaining significant threat of deflation.