October 24, 2012 / 8:10 PM / in 5 years

PIMCO's El-Erian sees more stimulus from ECB and Fed

NEW YORK, Oct 24 (Reuters) - The European Central Bank and the U.S. Federal Reserve will very likely provide even more stimulus to their economies, the chief executive of PIMCO, the world’s largest bond fund, said on Wednesday.

The two powerful central banks are “all in” as they act to give lawmakers more time to heal their respective problems in Europe and the United States, Mohamed El-Erian, who is also co-chief investment officer of Pacific Investment Management Co, said in speech at a conference hosted by The Economist magazine.

In a wide-ranging speech that touched on Europe’s debt crisis and suggested that a contraction in the U.S. government bond market is unlikely, El-Erian said he sees a 60 to 70 percent chance that U.S. politicians will strike a “mini bargain” to avoid a series of looming tax rises and spending cuts at year end, known as the “fiscal cliff.”

Addressing the unprecedented monetary easing programs undertaken by both the Fed and the ECB, El-Erian said the heads of the two central banks — the ECB’s Mario Draghi and Ben Bernanke of the Fed — recognize that any benefits of their large-scale asset purchases carry risks.

“You should have no doubt - no doubt - the current leaderships of both central banks are committed, and would likely do more before they do less,” El-Erian said.

“It’s very likely that they will be pushed to do more,” he said, adding the central banks alone cannot get the European and U.S. economies back on track.

“What’s happening is you have the central banks trying to buy time,” he said, “recognizing, as Chairman Bernanke said, that the benefits come with costs and risks.”

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