The risk of a recession is getting higher and higher, says veteran economist Mohamed El-Erian.<\/p>\n
My definition of a recession is a holistic definition. It goes well beyond two quarters of negative GDP, said the chief economic advisor of Allianz and former CEO of PIMCO.<\/p>\n
The labor market is too strong. Consumer spending is too strong. Business balance sheets are too strong. We simply are not in a recession. Is the risk of recession high? Yes, it is high and getting higher, El-Erian said on Yahoo Finance's \"Influencers with Andy Serwer.\"<\/p>\n
He highlighted the Federal Reserve tightening monetary policy into a slowing economy. The International Monetary Funds recent forecast shows all major areas of the global economy are slowing, calling conditions gloomy and uncertain.<\/p>\n
El-Erian said in order to stop the U.S. from slipping into a recession there are four measures in particular tht need to be taken.<\/p>\n
First and foremost, we've got to get control of the inflation beast, said El-Erian.<\/p>\n
That is a Fed that needs to act in not only tightening its monetary policy, but also regaining credibility. Its forward guidance right now is almost meaningless, he said.<\/p>\n
In July, the Federal Reserve announced a 75 basis point rate hike. Fed chair Jerome Powell said the central bank would be data dependent with its next steps essentially ditching forward guidance. Markets rallied on Powell's unscripted comments. <\/p>\n
El-Erian also said the government needs to target fiscal policy more to protect the most vulnerable segments of our society. That has massive economic, social, and political consequences.<\/p>\n
He also suggested pro-growth, pro-productivity reforms that need to be done, including to increase labor force participation, in order to improve supply chains.<\/p>\n
Finally, let's not forget financial stability. Let's not forget how risk has not only morphed and migrated from banks to non-banks, but non-banks have been encouraged, by years of zero interest rates and massive and predictable liquidity injections, to go well beyond the native habitat in taking risk, said El-Erian.<\/p>\n
Story continues<\/p>\n
So the non-banking sector is still offside. And we have to keep an eye on the financial stability risk because that could come back and harm the economy, he added.<\/p>\n
Ines is a markets reporter covering equities. Follow her on Twitter at @ines_ferre<\/p>\n
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2 reasons the 'risk of recession is getting higher and higher: Mohamed El-Erian - Yahoo Finance<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" The risk of a recession is getting higher and higher, says veteran economist Mohamed El-Erian. My definition of a recession is a holistic definition. It goes well beyond two quarters of negative GDP, said the chief economic advisor of Allianz and former CEO of PIMCO. Continue reading