The markets are assessing President Donald Trump's failure to enact health care reform last week and how this misstep could impact the future of his broader pro-growth policy agenda.
They will continue to watch these developments closely, says Mohamed El-Erian, chief economic advisor of Allianz SE, as the global political economy attempts to wrestle itself (at least somewhat) from the hands of central banks.
"The road that we've been on for such a long time, the so-called 'new normal,' is coming to an end, because it's being eaten up by its own contradictions," said El-Erian, during an interview on Bloomberg TV.
"The good news is if we pivot to a policy-driven recovery in growth and a boost in earnings. If not, we can go the other way," he explained.
The economist predicted some of the fallout from Trump's inability to overturn the Affordable Care Act earlier this month.
"By going on health care first, he may reduce the probability of getting tax reform in the summer," El-Erian said two weeks ago on Bloomberg Television. "You use up a lot of political capital going with health care first, so that's the thing the market should look at closely — the sequencing of policies."
Growth Conundrum
The economist and author of The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse, pointed to an issue that Trump raised during the election campaign: Economies have had slow, steady growth since the financial crisis but require new catalysts to move further ahead as well as leadership beyond that provided by monetary organizations.
"If we do not make that transition — and it is a big if — we'll find out that central banks are less effective at repressing financial volatility and less effective at promoting growth," El-Erian explained.
