Pimco's El-Erian: The Fed needs some help

@CNNMoneyInvest June 26, 2012: 1:40 PM ET

LOS ANGELES (CNNMoney) -- The U.S. economy is on the right path but it's not moving fast enough, said Pimco Chief Executive Mohamed El-Erian.

El-Erian told CNNMoney at the Milken Institute Global Conference in Los Angeles that those who expect a speedy recovery will be disappointed.

"People differ on what the economy will do, and in assessing what should happen versus what's likely to happen," he said, adding, "the economy will unfortunately weaken because it faces significant headwinds from outside."

Take the most recent gross domestic product figures.

The GDP, the broadest measure of economic growth, slowed in the first quarter, but El-Erian said it was the numbers behind the numbers that were most telling.

"The engine for growth was consumption [but] it's not because people earned more, the personal savings rate was coming down," he said. On top of that, "the one area that you'd like to see dynamic growth, business spending, disappointed on the downside."

But El-Erian does not think the Fed should step in with another round of quantitative easing, or QE3, right now.

"What should happen is that the Fed should be less activist and other government entities should step up to their responsibilities," he said in a not so veiled jab at Congress over the deficit and debt debates.

El-Erian did say there may come a time where the Fed will be forced to make a move, especially if the economy continues to show signs of weakness. And if lawmakers don't take concrete steps to avoid the so-called fiscal cliff.

"By the end of this year and into next year, a whole host of expenditure cuts and tax increases are due to come in unless decisions are taken," he said.

If Congress does not act decisively, then El-Erian said the Fed may feel compelled to move "not because it's the right thing to do but because the cost of not doing it is higher."

Still, El-Erian seems to be a bit more optimistic than most about another sluggish developed economy. Europe. While Spain's woes continue to make headlines, El-Erian noted that there has been some progress being made to tackle the continent's debt crisis.

In fact, looking three to five years out, he sees a stronger eurozone.

"The good news is Spain is not Greece in the sense that it doesn't have the deficit and debt issues of Greece nor does it have a dysfunctional public administration," said El-Erian. "The good news is also that Spain hasn't made the fatal decision that Ireland did, which is to assume the debt of an irresponsible private sector." To top of page

Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.80%3.88%
15 yr fixed3.20%3.23%
5/1 ARM3.84%3.88%
30 yr refi3.82%3.93%
15 yr refi3.20%3.23%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.