Commenting on Fed Chairman Bernanke’s testimony today, Pimco’s Mohamed El-Erian had this to say:

By virtue of its greater flexibility and responsiveness, the Fed ended up assuming the main role in responding to the crisis, with fiscal and other agencies (including the FDIC) playing important support roles. It is now the turn of the fiscal agencies to assume the main role, with the Fed and others playing the support roles.

Bottom line:  we have now entered the phase where fiscal policy is the more important determinant of the ability of the US to balance the risks of deflation and those of inflation. And, here, the jury is still out.

The one minute translation is that the ball is now in the courts controlled by Congress and the Obama administration. Neither shows any inclination to subordinate their desire for more expansive government to the need for fiscal conservatism and federal balance sheet rebuilding. I think El-Erian is being overly generous when he suggests “the jury is still out.”

more: here