Global markets again find themselves in the uncomfortable back seat of a car driven erratically by policymakers. The hope is that policy responses in both America and Europe will enable them to build on last week's solid gains and, thereby, improve the outlook for jobs and economic growth. This can happen if most/all of what follows materializes:
First, President Obama puts forward on Monday a credible package of fiscal reforms that captures the imagination and confidence of a majority of Americans. Failure would seriously undermine his important September 8th jobs plan and, critically, reduce the likelihood of striking that delicate economic/political balance between immediate job creation and a credible path to medium-term fiscal sustainability.
Second, the Fed delivers on widespread expectations that it is able to materially influence economic outcomes for the better. It is not enough for the FOMC to display on Wednesday a relatively united front that underpins a willingness and an ability to do more. It must also show that it possesses effective instruments in what is a rapidly diminishing policy arsenal.
Third, and turning to Europe where the ECB has also embarked on a risky path of intense policy experimentation, the central bank continues to offset the persistent shedding of private holdings of Italian and Spanish bonds. ECB purchases must be decisive enough to maintain stable bond yields notwithstanding yet another political scandal in Italy over the weekend, the growing probability of a downgrade in Italy's sovereign credit rating, and an inconclusive EU meeting.
Fourth, the Greek government counters the threat of an October debt default. To do so, it must deliver quickly on three commitments made to the "troika" (ECB, EU and IMF) that is withholding the next bailout tranche: yet another round of fiscal austerity, a realistic privatization program, and sufficient burden sharing by private creditors (or what is known as PSI, private sector involvement) -- and all this while maintaining a semblance of peace on the streets of Athens and other Greek cities. (No wonder the country's Prime Minister cancelled his trip to Washington DC.)
Finally, and speaking of Washington, there will be lots of news to follow as policymakers from almost 190 countries gather for the annual meetings of the IMF and World Bank. By Friday, markets will be looking for signals that the key 10-15 players are converging to a common analysis of the risks facing the global economy, appreciate the shared responsibility for addressing them, and are ready and able to pursue coordinated policy responses.
This list speaks to how (and why) top-down issues are still important drivers of markets -- and will continue to be so. It is not a comfortable place for markets given the recent history of recurrent policy shortfalls and debacles. Yet it is also reality for now.
Let us hope that American and European policymakers will finally rise to the occasion. There is a lot more at stake than the health of markets -- most importantly, the welfare of millions of un- and under-employed people languishing in a global economy that is slowing rapidly and facing the threat of yet another banking crisis (whose epicenter this time around is on the other side of the Atlantic).
If policymakers deliver, they would help unleash the hiring and investing power of a corporate sector that still benefits from cash-laden balance sheets, favorable debt profiles, and healthy income statements.
If they fail and, in the process, resume their dithering and bickering, it is just a matter of time until America's unemployment crisis worsens further, Europe tips into severe recession and greater financial instability and, as a result, millions more suffer around the world.
Mohamed El-Erian is chief executive officer and co-chief investment officer of Pacific Investment Management Co.
This post originally appeared at CNBC.com.