Mohamed El-Erian, chief economic adviser at Allianz, the parent company of asset management giant PIMCO, says the central bank is making things worse by continuing its purchases. In the meantime, investorsвЂ™ tolerance for risk is unusually high against a backdrop of surging вЂњmeme stocksвЂќ and trendy cryptocurrencies, as the Fed itself noted in a May report on financial stability.

вЂњBut tapering could have even more nefarious effects, so the risk of carrying on seems lower than the risk of backing out of it too abruptly.вЂќ вЂњEveryoneвЂ™s questioning what weвЂ™re getting for $120 billion right now,вЂќ said Megan Greene, a senior fellow at Harvard Kennedy School. A similar move by the Fed eight years ago sent the bond market tumbling, forcing the central bank to backtrack and threatening its credibility. If the central bank moves more quickly, that could jolt interest rates higher and hit the brakes harder on the economy than it intended. вЂњEncouraging more borrowing like this is just not necessary.вЂќДЄ big priority for the Fed now is not to surprise investors, who are expecting bond purchases to slow, but not for several months. вЂњItвЂ™s counterproductive on every level,вЂќ said Lou Crandall, chief economist at Wrightson ICAP. Publicly traded companies, which have greatly benefited from the Fed cash machine, have engaged in a wave of stock buybacks, which boost their share prices and enrich investors but do little to directly expand employment. Winding down asset purchases is the first step toward a more significant event - raising short-term interest rates - and the Fed wants to ensure that its actions wonвЂ™t slow the job market recovery as millions of Americans remain out of work.Д«ut itвЂ™s also not clear how much those asset purchases are actually helping support jobs. Some Fed officials believe that tapering bond purchases too soon could weaken the economy once the trillions of dollars in aid approved separately by Congress runs out, particularly amid rising fears about the latest coronavirus surge. The question has touched off a heated debate within the central bank itself over the future of a program that rescued the financial markets from a near meltdown last year.

Pat Toomey (Pa.), the top Republican on the Banking Committee, told POLITICO.ДЇed policymakers, who will gather this week for a closely watched meeting on their next steps, are now grappling with how and when to start slowing their bond buys, which amount to a staggering $120 billion a month. вЂњThereвЂ™s no justification for the Fed to maintain at current levels, and doing so seriously risks contributing to heightened inflation,вЂќ Sen.

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