Mohamed El-Erian on decoupling of GDP growth from employment: The U.S. needs an AI adoption policy

Sarah Eisen (Anchor) 00:00.000

Let Let's figure out what all this means for the markets and for the economy in the new year. Mohammed Al-Arien joins us, Allianz's chief economic advisor. I mean, do you do you see a scenario, Mohammed, where we have even higher unemployment and higher growth at the same time?

Sarah Eisen (Anchor) 00:14.640

What does that look like?

Mohamed El-Erian (Chief Economic Advisor) 00:16.800

I worry about that a great deal. And as you both discussed, it has political, social, and economic implications. Look, the decoupling of GDP growth from employment has been happening for a while, but it is accelerating. And it's accelerating because of innovation. And the way to

Mohamed El-Erian (Chief Economic Advisor) 00:35.360

deal with it is to have an AI adoption policy. You know, Sarah, David, you and we all talk about those working on AI. It's so exciting. What are the latest innovations? But as important is the issue of working with AI. And as yet, we do not have an adoption policy, and that's

Mohamed El-Erian (Chief Economic Advisor) 00:54.240

going to be really important to determine the mindsets of companies as they move forward.

Sarah Eisen (Anchor) 00:59.600

So What What does that mean for I mean, let's just start with the Fed for instance because it was I noted it was it was mentioned in the minutes that it would be hard for them to tell whether it's a structural or or cyclical change in jobs.

Mohamed El-Erian (Chief Economic Advisor) 01:12.560

Yeah, and as you point out, this is complicating the Fed's task for two reasons. One, it forces them which they haven't done yet to take a strategic view. They're going to have to decide is this a fundamentally productivity-enhancing innovation or not. That's really important. I

Mohamed El-Erian (Chief Economic Advisor) 01:31.320

think it is. And if it is, then the speed limit for the economy goes up. They can bring rates down. The second issue is what do you do when the two parts of your dual mandate starts decoupling even more? And that's what's going to happen moving forward. So, it does complicate

Mohamed El-Erian (Chief Economic Advisor) 01:48.480

the Fed both from a short-term perspective, but critically they've got to take a strategic view of what this means for the economy going forward. So,

Sarah Eisen (Anchor) 01:57.920

give it what Maybe they'll do that. Maybe they Well, what do you expect in terms of of Fed policy? Since the market's now what? At two cuts next year, the dot plots at one cut, we don't know exactly who's going to be on the committee, there's a lot of question marks.

Mohamed El-Erian (Chief Economic Advisor) 02:12.320

So a lot will depend on the new Fed chair, not in the sense of they can completely get what they want, but whether they can unify what is a deeply divided Fed committee. We saw very clearly from the minutes yesterday that the disagreements are deepening There's more issues they

Mohamed El-Erian (Chief Economic Advisor) 02:32.120

disagree on and they disagree to to a greater extent on that. So it is going to be a very divided fed. The new chair will will have to assert their authority and the best way to assert this authority is the way Yellen did it, Bernanke did it, Greenspan is through economic

Mohamed El-Erian (Chief Economic Advisor) 02:53.440

expertise. That's the way you assert your authority on a divided fed. Otherwise, it will be a very muddled middle sort of monetary policy