Mohamed El-Erian: Fed more likely to hike in December

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01. joining me right now former economic advisor to President Obama austan goolsbee along with Allianz chief economic advisor and President Obama's Global Development Council Chairman Mohamed el-erian gentlemen good to see you thank you so much for joining us great to see you so behind let me kick this off with you to what do you attribute this week's performance we see a real would you call it a romance with with markets as Trump was elected president why did stocks go to record highs why did interest rates move as high as they did the 10-year highest since April because traders and investors Maria have embraced the prospects of higher growth and high inflation under president elect Trump and they've done that for two reasons content and tone the content of his comments has been to emphasize two pro-growth elements of his program hi infrastructure spending corporate tax reform deregulation and downplay the anti-trade elements and the tone the tone has been incredibly constructive and unifying yeah i think you're right i mean when you look at the infrastructure plans coupled with the lower taxes and a rollback of regulation he's promising to spur economic growth austin what do you think about that how much growth are you expecting as a result of these plans not a ton I mean I think we we've had a significant uncertainty that was bearing down in the market trying to figure out this question that that Mohammed raises is Donald Trump going to go for that nationalist kind of protection as the agenda or is he going to shift if he were elected to a more traditional Republican agenda you know big tax cuts regulatory cuts thus far he seems to be going toward the more standard Republican route but I we have yet to see this other shoe drop which is how are his supporters the non establishment Republicans going to react to the last 72 hours in which they're taking down a bunch of the big promises on the campaign website they're named a bunch of lobbyists and the the list of people they're talking about for jobs in Washington are this are the same old lifetime politician kind of names I think we saw when George Bush enacted pretty close to the program that Trump is now describing big tax cut big rollback of regulations that had existed under President Clinton we did not get a very big jump in growth you got a little bit but you know we were going into a recession right then but that wasn't active wasn't that coupled Austin with a whole host of new regulations which did also hamper growth so in other words what you're saying is you don't think lower Jeff's no no lower taxes and and the rollback of regulations will lead to growth I do not think that giant tax cuts for high-income people and corporations lead to rapid growth it did that did not happen when George Bush did it and if actually it's not true that George Bush increased a bunch of regulations when he came in he repealed a whole bunch of the things they Clinton had put in I think the the argument that unpaid-for tax cuts that are going to grow the deficit will create magic Beanstalk beans that grow the economy I think has been disproven many times I think they will pass a tax reform of that nature but I don't think that that will have a big impact so what do you think's been wrong with the last eight years then how come we're still at just under two percent growth the reason we've been about two percent growth as I've we've talked about many times is we had a large bubble that popped and the economy can't go back to doing what it was doing before the recession began and so that involves transforming the main drivers of growth and that's a slow process and you know we what we need is to shift a more exports more capital investment more innovation led growth and you can't do that overnight Mohamed let me ask you about this move in interest rates do you think that has to do with the worry about inflation given that we are going to see more spending in terms of infrastructure which Trump has spoken about or or do you think that we're seeing that have to do with the Federal Reserve I think we're seeing mainly because of the embracement as I said of higher growth and high inflation we also are having a definition if you like of what the Fed is likely to do and with the market so calm and with inflationary expectations going up that means that fed is more likely to hike in December than what people thought immediately after the election results and finally in the background does this concern and it hasn't come out yet and it's important that it stay in the background there's this concern as to whether a trump presidency will come after the political independence of the Federal Reserve so the main drivers now our growth inflation to a lesser extent the Fed