Following PIMCO's El-Erian, Warren Buffett Discourages QE2

(March 2, 2011) — Echoing statements made by Pacific Investment Management Co.’s Mohamed El-Erian and Bill Gross, Berkshire Hathaway’s Warren Buffett has said the US does not currently need an economic stimulus.

The sentiments by the financial heavyweights reflect waning public support for the Federal Reserve’s effort to stimulate the economy as well as fears that the US cannot forever continue with the stimulus.

In an interview with CNBC, Buffett explained that despite his respect for Federal Reserve chairman Ben Bernanke, he believes the US does not need to continue its quantitative easing program, dubbed QE2, as there has been a tremendous amount of government stimulus since the beginning of the financial crisis.

Looking ahead, he noted that the nation’s employment situation will likely improve as the economy grows. He estimated the unemployment rate will be in the 7% range by 2012.

Previously, El-Erian has said that the cost of the Federal Reserve’s actions is starting to outweigh the benefits. In an interview with CNBC, El-Erian said the central bank should calculate how it can exit from its multi-trillion dollar quantitative easing program. Federal Reserve Bank of St. Louis President James Bullard has said the central bank is “determined” to get monetary policy back to normal, confirming that policymakers could subtly adjust its plan by backing off early from QE2, the Wall Street Journal reported.

“Bond yields and stock prices are resting on an artificial foundation of QE2 credit that may or may not lead to a successful private market handoff and stability in currency and financial markets,” Gross wrote.