'Road Map' Needed For Fiscal Responsibility: El-Erian
The Obama administration needs to present a detailed plan to investors to show how it will "restore fiscal sustainability," Pimco CEO Mohamed El-Erian told CNBC.
As the nation moves forward following the injection of trillions of dollars in capital from the Federal Reserve and Treasury, markets will need to be assuaged that the trend of deficit spending and its accompanying higher interest rates will not continue indefinitely, El-Erian said in a live interview.
"It is critical that the administration signal how it's going to restore fiscal sustainability," he said. "They need to give a road map to the markets once that time comes, how they’re going to restore fiscal sustainability."
Keeping mortgage rates at reasonable levels — following a rise of a full point in less than a month — will be critical to the housing recovery, which in turn will be a lynchpin for economic growth, El-Erian added.
How that will be accomplished will depend largely on the Fed as well as the Treasury.
Speculation is beginning to grow over a possible shake-up in policy makers, as Fed Chairman Ben Bernanke's term nears its expiration.
Asked whether he would endorse Bernanke for another term, El-Erian passed, calling the current chair a "very good central bank governor" but bestowing the same praise on his possible successor, Larry Summers.
What's more important than who is leading, El-Erian said, is coordinating an exit strategy from the current monetary policies.
"The US has great people that are available," he said. "What's critical is to make sure that fiscal and monetary policy is coordinated. And there's a risk...right now that the coordination is not taking place, which will make both monetary and fiscal policy problematic."