Mohamed El-Erian has been a thought leader on macroeconomics for decades, regularly making headlines for his incisive commentary on how politicians’ choices in Washington, D.C. affect everyday life—for investors and others. For instance, during Joe Biden’s presidency, the chief economic advisor for Allianz offered measured praise of the economy’s over-achievement by many benchmarks, tempered with criticism that the Federal Reserve had undermined its own credibility by failing to meet its 2% inflation target.
With inflation having now cooled, but still far from a settled issue, El-Erian is now raising a provocative question: Will America’s next era recall Ronald Reagan or Jimmy Carter? He told Yahoo Finance’s Morning Brief that America’s at a fork in the road, a real “question mark” moment, and in his view, it’s a true coin toss about what direction things will go from here.
The Reagan vs. Carter question
El-Erian drew on two pivotal moments in modern U.S. economic history: the Carter moment of the late 1970s and the Reagan moment directly afterward. Carter presided over the dreaded era of stagflation—high inflation, stagnant growth—and a sense of drift that culminated in economic and political upheaval, exemplified by long lines at the gas station for the average American. Reagan’s policies, starting in the early 1980s, were marked by deregulation, tax cuts, and a reset of U.S. economic priorities, ushering in a period of declining inflation and renewed global confidence in American leadership, albeit with a short but painful recession as the Federal Reserve raised interest rates by unprecedented amounts.
El-Erian points to “unusually high policy volatility” coming out of Washington, including abrupt tariff threats, soaring deficits, and inconsistent execution. These moves, he argues, have “shaken the very foundations of the global order,” making it harder for investors and businesses to plan for the future.
His reading of the market indicated that traders were pricing in an 80% likelihood of a “Reagan moment” in January, but a turning point came in April with Trump’s first major moves on tariffs and trade and that confidence fell below 50%. This is unusual given the U.S. is such a mature market, he said. Now confidence is back around 70%, but that’s still unusual for the U.S., with its mature institutions and big, diversified economy. In his opinion, “it’s a 50-50.”
El-Erian cited multiple pieces of evidence that U.S. financial markets are behaving in ways more typical of developing countries: the dollar weakens even as yields rise, and traditional correlations between stocks and bonds have broken down. This, he said, is a sign that the U.S. is “trying to remake its domestic system,” but the outcome is far from certain.
The 2020s have been defined by recession warnings
El-Erian cautioned that the outcome will depend not just on U.S. policy, but also on how other countries respond. He noted that while financial markets remain “more comfortable than I would be,” CEOs and corporations are in “wait and see” mode, postponing major investments until the policy landscape becomes clearer.
For now, El-Erian says, the U.S. stands at a fork in the road. The next few months—and the choices made by policymakers and businesses—will determine whether this is a moment of renewal or a slide into stagnation. As he puts it, “There’s a real question mark as to whether this is a Reagan moment … or is this a Jimmy Carter moment in which the U.S. ends up in stagflation and ultimately recession?”
El-Erian was one of the many economists who predicted a recession in 2022, likewise seen as a fork-in-the-road moment. For instance, David Rosenberg predicted a recession for over 18 straight months, even though it kept failing to materialize.
Allianz and El-Erian did not respond to Fortune‘s requests for comment.
For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing.
