Tags: Mohamed El-Erian | economy | recession | investing

El-Erian Warns of 'Global Recession With Financial Disorder'

El-Erian Warns of 'Global Recession With Financial Disorder'
(Dollar Photo Club)

By    |   Tuesday, 26 January 2016 03:43 PM


Newsmax Finance Insider and Allianz Chief Economic Adviser Mohamed El-Erian said Tuesday the world economy is nearing a crucial fork in its financial road.

He said the global economy is at the end of the era of borrowing growth and profits from the future in the form of easy monetary policies.

"Either we validate the financial asset prices and growth faster, or alternatively we will slip into a global recession with financial disorder," he told CNBC,  saying we’ll know the answers within the next three years.

"The path we're on right now — and that we've been on for a while— is ending," he said.

“El-Erian said the Federal Reserve waited too long to begin exiting from emergency polices designed to boost the economy after the 2008 financial crisis,” CNBC explained.

"They were waiting, waiting, and waiting, and irony is that the economy has healed, but it is not unleashed," he said.

"The notion that we're going to get four hikes this year is divorced from reality. I think, at most, we get two," El-Erian said, predicting a "very shallow path" higher for rates.

Fed policymakers meet on Tuesday and Wednesday for the first time since raising interest rates in December. Roughly $2.5 trillion of stock market value wiped out in the past three weeks and a possible consumer pullback could throw the Fed off its course of gradual interest rate hikes, Reuters reports.

Policymakers continue to argue that the threat will pass, but the risk that the selloff will hit the main engine of U.S. economic growth — household spending — gets bigger the longer markets remain depressed.

Fed research and other studies estimate that up to 6 percent of any drop in household net worth gets passed through and results in less spending. It means that unless the market recovers soon, upwards of $150 billion in consumption will be lost in coming months — a drag of close to 1 percent of gross domestic product.

However, Newsmax Finance Insider Hans Parisis disagrees, forecasting four rate hikes.

“I think investors shouldn’t be surprised if the Fed would stick to its planned four rate hikes of 0.25 percent each for this year, which would really surprise the markets,” he predicts. “I personally do not expect the FOMC to signal they will place their planned rate hikes for 2016 on hold.”

(Newsmax wire services contributed to this report).

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Mohamed El-Erian is the chief economic adviser at Allianz SE. To read more of his blogs, CLICK HERE NOW.

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Newsmax Finance Insider and Allianz Chief Economic Adviser Mohamed El-Erian said Tuesday the world economy is nearing a crucial fork in its financial road.
Mohamed El-Erian, economy, recession, investing
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2016-43-26
Tuesday, 26 January 2016 03:43 PM
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