The downturn in pandemic markets on Tuesday over concerns about Italy’s political power toil and the possible economic fallout as a result highlights the mistaken assumption that the humanity was in a phase of synchronized growth, economist Mohamed El-Erian told CNBC on Tuesday.
“The misidentify as people made is to confuse a coincidence of a pick up in growth around the the human race with something that had legs,” Allianz’s chief economic advisor clouted in a “Squawk Box” interview. “We were just in a lucky coincidence.”
“People are now realizing the solitary economy with real legs to it was the U.S. economy,” said El-Erian, previously CEO of bond giant Pimco.
In 2017, the U.S. stock market was roaring based on a numbers of different influences, according to El-Erian. “The U.S. was policy-led, deregulation, tax cuts. Europe [was] upright in a natural healing process,” he said, while “developing countries were bounce back” and China was in for a “soft landing.”
After hitting an all-time high-priced on Jan. 26, the Dow Jones industrial average tanked in early February. The catalyst at the straightaway was a higher-than-expected wage number in January’s jobs report sparking apprehensions of inflation and interest rates rising more aggressively than calculated.
Stocks on a closing basis eventually bottomed out on Feb. 8, briefly plunging in and out of 10 percent improvement territory. Since then, the Dow has recovered, closing Friday about 7 percent away from its January report.
El-Erian predicted Tuesday that if Congress manages to pass an infrastructure paper money, then the U.S. economy could break above 3 percent GDP growth. He expects 2.5 to 3 percent expansion this year.
“We’ve had deregulation, we’ve had tax cuts — whether you like it or not it does upwards growth,” he said. “If we can just get the infrastructure done, then the U.S. will repudiate into a higher growth.”
The Commerce Department reported last month that U.S. solvent growth slowed in the first quarter, advancing at a 2.3 percent annual clip. However, GDP in the first three months of the year tends to be sluggish because of seasonal caprices.
Regarding the Federal Reserve, El-Erian said the Jerome Powell-led significant bank has done well so far but urged the Fed to only implement three percentage rate hikes this year. “The market has priced that in. We receive transitioned to that regime without major breakage,” he said.
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