The two biggest risks to the US recovery are a genuine disruption of oil supplies or inept policy from Washington, according to Jim McCaughan, the CEO of Principal Global Investors.
“Oil supply disruption seems unlikely given relative stability in Saudi Arabia,” said McCaughan in an interview with CNBC on Friday.
“Washington policy is already in dangerous territory. Quantitative easing is causing commodity inflation, which will slow down job creation,” he added.
With the US deficit so large McCaughan is predicting the need for both spending cuts and tax rises and is calling on the politicians to get on with it.
“I see the biggest risks here as being inaction caused by the polarized debate in Washington. I believe they need to get on with this,” he said.
“An excessively large public sector is now crowding out private sector job creation. Further delays, or a failure to raise the Federal debt ceiling, are serious risks,” said McCaughan.
Unconventional measures from the Federal Reserve have been very bad for the dollar in McCaughan’s view and he wants quantitative easing – by which the Fed buys assets in the markets to keep interest rates low - to stop.
“The Fed policy has been very negative for the dollar. They are carrying on with QE far longer than they should. I don't expect QE3, but it would be a serious mistake,” he added.