Mohamed El-Erian, Allianz SE’s chief economic adviser, said political turmoil in Washington is raising the risk that President Donald Trump and lawmakers will be unable to coordinate efforts to promote economic growth.
“The unknown is whether the technical work that’s going on, in tax reform and infrastructure, will ever make it to Congress in a very constructive manner,” El-Erian said Wednesday in an interview on Bloomberg Television. “The longer these distractions continue, the harder it is for Congress to get to economic governance.”
The Senate has been conducting hearings into Russian interference in the U.S. election, including testimony from James Comey, the former FBI director who was fired by Trump. Attorney General Jeff Sessions, who recused himself from the investigation, left Democrats Tuesday saying that he was stonewalling their efforts. El-Erian said it’s hard to say how long the focus on the probe will distract attention from the economy.
“One doesn’t know how much is there,” El-Erian said. “And until people figure out how much is there, you can’t answer the question ‘What does it take for it to go away?’ "
Trump campaigned on plans to lift the pace of economic growth to 3 percent or more. While his views on immigration and trade made much of Wall Street uneasy, many bankers welcomed the president’s choices of advisers, including former Goldman Sachs Group Inc. executives for top posts as Trump highlights the importance of reforming the tax code.
‘Clear the Runway’
“He has the people around him who have been working on this, he just needs the political runway. And for that, you’ve got to clear the distraction, which they haven’t been able to do so far,” said El-Erian, who is also a Bloomberg View columnist. “What I do know is the economic data is softening, and that there’s a risk that they may see the economy slip back into sub-2 percent growth.”
The U.S. economy grew at a 1.2 percent pace in the first three months of this year, down from 2.1 percent in last year’s fourth quarter and 3.5 percent in the third. For 2017, economists are projecting 2.2 percent.
El-Erian has long said the U.S. needs to focus on infrastructure improvements, tax reform and efforts to modernize the labor force. He previously said Trump’s initial focus on health care may have been a mistake because it put economic matters on the back burner.
The president’s priority should be to work with lawmakers and get a “national discussion going on the economy and on the importance of moving forward on pro-growth policies,” El-Erian told Bloomberg’s Tom Keene. “The longer we wait, Tom, the higher the risk.”