Economic guru Mohamed El-Erian warns that the biggest risk to the U.S. stock market rally since Donald Trump won the presidency may be the strength of the dollar.
"Keep an eye on the dollar," the former Pimco co-CEO told CNBC.
The Newsmax Finance Insider also explained that Europe's ability to get its economic act together is "key to sustaining" the U.S. stock market rally.
The dollar has climbed more than five percent since Trump’s victory in the presidential election increased expectations of fiscal stimulus, while Federal Reserve officials projected they’ll lift interest rates three times in 2017, Bloomberg has reported. A stronger currency could pressure U.S. exports, hurting the manufacturing industry that Trump promised to revive.
If the dollar isn't overly volatile and Trump's pro-growth policies of tax cuts and business deregulation are both enacted, the U.S. stock market could extend its rally, the Allianz chief economic adviser said.
"Things are aligning well for the market. The economy has a solid foundation. Policy is getting more pro-growth, and Congress is getting more functional," he said. "That's good for the U.S. economy. It's good for the markets."
El-Erian said concerns about whether tax cuts would drive up the deficit too much are overblown because higher economic growth means the nation can stand "a bigger balance sheet," CNBC.com reported. "To the extent that the deficit is caused by pro-growth measures I worry a lot less. We have space, fiscal space. But we have to use it intelligently," he said.
However, not all economic gurus are convinced that Trump's strategy will succeed.
A pack of Nobel Prize-winning economists gave Trump and his policy plans the thumbs-down, with one saying the president-elect’s programs could lead to a deep recession, Bloomberg reported.
Speaking on a panel Friday during the first day of the annual American Economic Association meeting in Chicago, the Nobel laureates voiced a variety of concerns about the billionaire developer’s stance, from his haranguing of U.S. companies about their outsourcing plans to the risk that his tax and spending proposals could lead to run-away budget deficits.
“There is a broad consensus that the kind of policies that our president-elect has proposed are among the polices that will not work,” said Joseph Stiglitz, summing up the views of the panel that included his fellow Columbia University professor Edmund Phelps and Yale University’s Robert Shiller.
(Newsmax wire services contributed to this report).
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