U.S. economic data are “alarming,” signaling the recovery is losing momentum, Mohamed A. El-Erian, Pacific Investment Management Co.’s chief executive officer, wrote in an opinion piece in the Washington Post.
Unemployment is high, consumer debt and credit is shrinking and small companies are having trouble obtaining bank lines of credit, wrote El-Erian, who is also co-chief investment officer at Pimco, which runs the world’s largest bond fund. Increased government spending and additional debt purchases from the Federal Reserve are unlikely to spur a rebound, he wrote.
“Throughout the summer, data signals have become more alarming,” wrote El-Erian, who is based in Newport Beach, California. “Current policy approaches here and abroad are unlikely to deliver a durable and robust U.S. recovery.”
A U.S. report today will show gross domestic product grew at an annual pace of 1.4 percent in the second quarter, versus the 2.4 percent pace the government estimated last month.
Housing is waning and home values are set to fall further as foreclosures increase, El-Erian wrote in the article.
There is a need for tax reform, housing-finance reform, infrastructure investment, support for education, job retraining, removal of barriers to interstate competition and a stronger social safety net, he wrote.
“The equity markets are again under pressure while yields on Treasury bonds have collapsed, reflecting that market’s growing concerns about the weak economic outlook,” El-Erian wrote.
The central bank said following its Aug. 10 meeting that it would reinvest principal payments on mortgage assets it holds into long-term Treasuries after judging “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”
Related Information in Prosperity View
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- Emerging Markets Continue to Grow – Mark Mobius
- Cost of Debt: Interest Rates to Remain Low
- Follow the Money – Dump Treasury Bonds and Invest in Emerging Markets
- Household Spending and Saving Appears to be Finding the Happy Medium
- High Unemployment Expected To Keep Interest Rates Low
- Emerging Markets vs. Domestic Companies: At Home Cash is Tight, Being Used to Pay Down Debt, Not Spending
- Attempt to Reduce Debt is Difficult and Impacts Global Economy
