El-Erian: Federal Reserve Needs to Lead the Market

The transcript discusses the market's reaction to a speech by Fed Vice Chair Stanley Fischer, highlighting a hawkish tilt and the Fed's progress on employment and inflation objectives. It explores the challenge the Fed faces in managing market expectations, conditioned by past dovish actions. The anticipation of Chair Yellen's speech at Jackson Hole is noted, with a focus on structural versus cyclical issues. The bond market's response to Fed policies, particularly the US 530 spread, is analyzed, considering influences from Europe and Japan.

What implications does the conditioning of markets to expect dovish central bank actions have for future Fed policies?

How might Chair Yellen's emphasis on structural headwinds in her speech affect the effectiveness of low interest rates?