The U.S. economy is in a “very good place” thanks to a strong labor market, but Allianz Chief Economic Adviser Mohamed El-Erian is worried that internal and external headwinds will slow further growth.
“One is self-inflicted wounds — Fed miscommunication being an example,” he told FOX Business’ Maria Bartiromo on Monday. “And the other is spillbacks from what’s happening in the rest of the world and from volatile markets.”
El-Erian said in order for the U.S. economy to continue to grow at a 2.5 to 3 percent pace, the government should focus on implementing more policies, such as infrastructure, and U.S. leadership must also get other countries to focus on pro-growth.
U.S. stocks rallied on Friday after Federal Reserve Chairman Jerome Powell said the Fed would be “patient” in assessing the economy and that it could be flexible on its balance sheet reduction during a discussion with former Fed Chairs Janet Yellen and Ben Bernanke.
El-Erian said the Fed understands that the market doesn’t like the notion that the balance sheet reduction is on autopilot because it puts an enormous burden on interest rate policy.
“What the market was looking for is for the Fed to realize that it can’t be on autopilot, that it has to be more sensitive to what’s happening not just in the U.S. economy but also to what is happening globally,” he said. “That is what the market heard from Chair Powell and that’s why you got such a powerful rally on Friday.”
El-Erian also said the global market should shift its focus.
“We’re worried about the U.S. slowing to the rest of the world, instead of the rest of the world picking up towards us,” he said. “There is nothing predestined about the wrong sort of convergence. It’s about policies here and in the rest of the world and avoiding mistakes.”