While even some of the most dogged bulls are throwing in the towel on their optimistic forecasts for the US (see Goldman taking the axe to its 2019 GDP forecast noted earlier), there are those who steadfastly believe that 2019 will be a solid year for the US economy, and that no recession is still in sight.
One among them is Allianz chief economic advisor Mohamed El-Erian, who dismissed concerns that the US is facing a recession in the coming year, saying in an interview on Fox News Sunday that the economy is likely to continue growing at 2.5-3%.
"[A recession] is certainly not becoming a reality. You need either a major policy mistake or a massive market accident to push us into recession. But we will slowdown unless we build on the pro-growth policies."
On the same day that he penned a Bloomberg op-ed, explaining why "life is getting harder for central banks" in which he concluded that "whichever way you look at it central banks will be exposed to more criticism from politicians, market participants and analysts" - and rightfully so, after all it was the central banks that engaged in the biggest can-kicking experiment in history by injecting $16 trillion in liquidity and the time to pay the piper is fast approaching, El-Erian said that "Trump’s frequent criticism of Fed policy is unusual" (in fact, as Goldman observed earlier it is not at all unusual and that "it is far from unprecedented on a longer-term comparison"), adding that the independence of the central bank is important to economic security (at this point we could go into a tangent how only career economists believe the Fed is "independent", especially from commercial bank pressure but we won't).
And yet, adding his own set of criticism to US monetary policy, El-Erian said that the Fed realizes that it can’t put its key policy tool, the federal funds rate, on autopilot, and that "it needs to better communicate its policy choices."
El-Erian also said that the turmoil in Washington, including a government shutdown now in its ninth day, is a factor in the market’s recent decline, which is also open for debate considering that the market is up nearly 3% since the government was officially shutdown at midnight on December 21.
And while the Allianz economist remaind optimistic on the US economy, he correctly noted that a bigger factor is that the global economy - notably China and Europe - has become more uncertain.
Finally, one statement by El-Erian that was largely undisputed was his contention that with the Fed and ECB tightening liquidity (the ECB's QE ends in two days) "it’s no longer about buying every dip, it’s about selling every rally." And as market uncertainly is amplified by computer trading (but not only as we discussed extensively yesterday) the possibility of 1,000-point daily swings in the Dow Jones Industrial Average is the “new reality” for now, he concluded:
"The economy will remain strong, growing at 2.5%-3.0% but because what is happening in the rest of the world, because liquidity conditions have changed markets will remain volatile, so don't be surprised if you see these 1000-point swings in the Dow, that is the new reality for now, and it reflects the fact that we are coming from a very good 2017. Everything went right in 2017: higher returns, no volatility and great correlations. So I think of this a normalization, it doesn't feel good in the short-term but it's ok over the long-term."
Full clip below: