Submitted by Taps Coogan on the 6th of October 2019 to The Sounding Line.

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Allianz Chief Economic Advisor, Mohamed El-Erian, recently spoke with CNBC about his outlook for the US economy and his concerns that dovish central bank policy risks becoming ineffective, if not outright harmful, for the economy.

 

Some excerpts from Mohamed El-Erian:

“The domestic side of the US economy has been doing very well. So if you see either a significant slowing in wage growth and/or job creation, it will tell you that the domestic side is getting contaminated by the global slowdown…”

“The question is not whether central banks are going to be friendly. They are going to be friendly. The question is whether they can stay effective. Already in the case of the ECB, in my opinion, they are not just ineffective, they are harmful to the economy… I don’t think the monetary authorities can save us from a recession nor do I think fiscal (stimulus) will. What will save us from a recession, and I am pretty optimistic about this, is the non-tradable sector, the domestic sector of the US economy that is still in good shape.”

“(The Fed) definitely has more room (than other central banks)… but do you really want to use that now, when the domestic economy is still doing well? I suspect that they will cut because the risk (associated with) not doing so is high, but we shouldn’t expect that to materially change economic outcomes.”

Mr. El-Erian’s interview was conducted right before the ISM Non-Manufacturing data for September was released. That data came in substantially below expectations. There is more to the interview, so enjoy it above.

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