US Markets

Economy could grow faster if DC got out of the way: El-Erian

El-Erian: 'Political dysfunction' is an issue for markets
El-Erian: 'Political dysfunction' is an issue for markets

Lawmakers' inability to compromise is hurting markets and hinders economic growth, Pimco's Mohamed El-Erian told CNBC on Thursday.

"We are in a repeated game where a political dysfunction is going to be an issue for markets," he said, adding that the global and U.S. economies are not growing fast enough to overcome the headwinds from Washington.

The U.S. economy "is able to endogenously heal and grow faster if only these headwinds were to get out of the way," El-Erian said. He expects growth of a "solid 2.5 percent."

The problem with the deal is that the fundamental issues were not addressed, he said, and the same concerns will resurface in a few months. An agreement was reached not because of "some great compromise" but because both parties were exhausted—after great damage was done, he added.

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That setback will cause the Federal Reserve to postpone tapering at least until Janet Yellen becomes a head of the Fed, El-Erian said. The Fed will be "more accommodative for longer," he said, buying more insurance ahead of yet another round of political brinkmanship.

"But this notion of taper is less probable now given what has happened," El-Erian said.

By CNBC's Anna Andrianova. Follow her on Twitter @AndrianovaAnna