Pimco, the world’s biggest bond fund manager, isn’t backing off its view that the U.S. economy has entered a “new normal” world of diminished growth.

Expectations of strong growth in the first quarter will be dashed, says Pimco CEO Mohamed El-Erian. "I think people are going to be surprised that the first quarter, which was initially thought to be a 4 percent quarter, may end up 2 percent or below," he told CNBC.

The economy expanded 3.1 percent in the fourth quarter and 2.9 percent for all of last year.

Mohamed El-Erian (file photo)

"I don't think we are near a recession but I think we are weakening," El-Erian said. "Watch the housing market. I think the housing market is again key. It won't go away."

The Standard & Poor's/Case-Shiller home price index dropped 3.1 percent in January from a year earlier and 1 percent from December.

The Federal Reserve is "doing a good job given what other people are not doing," El-Erian said. But he’s not sure its second round of quantitative easing (QE2) was a good idea. “And QE3 would be a very bad idea," El-Erian said.

Weaker-than-expected February trade data led others to lower their U.S. growth forecasts too. Morgan Stanley cut its first-quarter estimate to 1.5 percent from 1.9 percent prior to the data.