The economy faces a slow creep higher while stocks will see volatility amid a "tug of war" over probable recovery scenarios for 2010, Pimco CEO Mohamed El-Erian told CNBC.
While Thursday's reading on gross domestic product showed the economy growing at a 3.5 percent clip, such movement probably isn't sustainable because of pressure on consumers, El-Erian, who helps run the world's largest bond fund, said in a live interview.
"A lot will depend on what else happens in the economy," he said. "We are getting at a really critical stage where everything has to come together for us to be able to sustain growth at this point."
Growth likely will be closer to 2 percent going forward as consumers continue to shed debt, he added. Mortgage rates could move another point higher as the government winds down programs aimed at helping the housing market recover.
At the same time, investors will face tough decisions about what to do with their money amid conflicting signals about growth while interest rates remain too low to stay in cash.
"They're pushing you to take more risk," El-Erian said. "On the other side there's a growing recognition that 2010 is going to be difficult. You're getting this tug-of-war going on and you're going to see quite a bit of volatility."
He called on the government to ease back on some of its programs, particularly its buying of mortgage securities. But he added the government has to be careful not to "upload all the mortgages it has bought into a market that is not able to absorb it."
Until the housing market recovers, the economy will not reach a point of "escape velocity" where some of the positive signs are enough to signal long-term robust growth, El-Erian said.
"The gravity is still there," he said. "It has to do with the deleveraging, it has to do with regulations that we're seeing increasing. You're only getting to escape velocity if you get the handoff to the consumer. Companies are still hesitant. We're not yet at the point of escape velocity."