>> Sandra: WE WANTED TO GET

SOME UNIQUE PERSPECTIVE ON THIS

WEEK'S WILD SWINGS ON

WALL STREET AND MAKE SENSE OF

THOSE BIG MARKET MOVES.

WE DECIDED TO BRING IN A MOHAMED

EL-ERIAN, CHIEF ECONOMIC ADVISOR

FOR ALLIANZ, PARENT COMPANY OF

INVESTMENT GIANT PIMCO WHERE HE

WAS CEO.

MR. EL-ERIAN ALSO SERVED AS

CHAIRMAN OF PRESIDENT OBAMA'S

GLOBAL DEVELOPMENT COUNCIL.

WONDERFUL TO HAVE YOU ON THE

PROGRAM THIS MORNING, MR.

MR. EL-ERIAN, THANK YOU.

IF IF I COULD FIRST ASK YOU -- I

KNOW YOU HAD A CHANCE TO LISTEN

TO THE INTERVIEWS BEFORE THIS,

KELLYANNE CONWAY FROM THE

WHITE HOUSE AND CONGRESSMAN

STEVE SCALISE.

IT'S AN INTERESTING MOMENT FOR

THIS COUNTRY WHERE WALL STREET

IS REFLECTING THE ACTIONS OF THE

WHITE HOUSE AND CONGRESS PERHAPS

IN A BIGGER WAY THEN WE HAVE

SEEN HISTORICALLY.

CAN YOU WEIGH IN ON THAT AND

SORT OF PROVIDE SOME CLARITY ON

WHAT WE ARE SEEING IN THE

MARKETS TODAY?

>> Mr. El-Erian: TO UNDERSTAND

WHAT'S HAPPENING ON WALL STREET,

AND THAT IS VOLATILITY,

UNSETTLING VOLATILITY IN THE

WORST DECEMBER IN HISTORY, YOU

HAVE TO LOOK BEYOND WASHINGTON.

WASHINGTON IS AN ADDED FACTOR

BUT THERE ARE THREE THINGS GOING

ON.

ONE, THE GLOBAL ECONOMY HAS

BECOME MORE UNCERTAIN.

NOT BECAUSE OF THE U.S.

THE U.S. IS DOING FINE, BUT

BECAUSE OF EUROPE BECAUSE OF

CHINA.

TWO, CENTRAL BANKS HAVE CHANGED

BEHAVIOR.

THEY ARE NO LONGER BUYING

SECURITIES.

THERE ARE NO LONGER KEEPING

INTEREST RATES REALLY LOW.

THE FED AND EUROPEAN CENTRAL

BANK ARE TIGHTENING LIQUIDITY.

AND FINALLY, BEHAVIOR HAS

CHANGED ON WALL STREET.

IT'S NO LONGER ABOUT BUYING

EVERY DIP, IT'S ABOUT SELLING

EVERY RALLY.

SO THERE'S A LOT GOING ON AND

THIS BEING AMPLIFIED BY COMPUTER

TRADING.

SO IT'S REALLY IMPORTANT TO GET

THE FOCUS BACK ON WHAT'S

WORKING, AND THAT'S THE U.S.

ECONOMY.

>> Sandra: YOU HEAR THE WORD

THROWN A LOT, RECESSION, THESE

DAYS.

OUR CONCERNS OF ONE, ARE THEY

OVERDONE AT THIS POINT OR IS

THAT BECOMING A REALITY?

>> Mr. El-Erian: IT CERTAINLY

NOT BECOMING A REALITY.

IF YOU WOULD NEED EITHER A MAJOR

POLICY MISTAKE OR A MASSIVE

MARKET ACCIDENT TO PUSH US INTO

RECESSION.

BUT WE WILL SLOW DOWN UNLESS WE

BUILD ON THE PRO-GROWTH

POLICIES.

AND I THINK THE WESTERN

INFRASTRUCTURE IS AN IMPORTANT

ONE.

YOU CAN GET BOTH PARTIES TO

SUPPORT THAT AND AN

INFRASTRUCTURE EFFORT WOULD

INCREASE PRODUCTIVITY.

YOU COULD DO IT WITH PRIVATE AND

PUBLIC PARTNERSHIPS AND

IMPORTANTLY, IT WOULD BUILD ON

WHAT HAS BEEN DONE SO FAR TO GET

US TO A HIGHER GROWTH PLATFORM.

>> Sandra: THERE'S BEEN A LOT

OF TALK ABOUT THE PRESIDENT'S

OPEN CRITICISM OF THE FEDERAL

RESERVE AND I KNOW YOU JUST

MENTIONED THE RISK TO THE

MARKETS THAT THE FEDERAL RESERVE

POSES WITH THESE INTEREST RATE

HIKES.

THE PRESIDENT HAS BEEN VERY

CRITICAL OF THOSE HIKES SAYING

THE ONLY PROBLEM OUR ECONOMY HAS

IS THE FED AND HE'S BEEN

CRITICAL SINCE HE TOOK OFFICE.

IT WAS A COUPLE YEARS AGO HE

SAID THE FED IS OBVIOUSLY NOT

INDEPENDENT.

HOW DOES THAT OPEN CRITICISM

FROM THE U.S. PRESIDENT, HOW

DOES IT AFFECT MARKETS?

>> Mr. El-Erian: IT CERTAINLY

UNUSUAL BUT I THINK EVEN THE FED

IS UNDERSTANDING THAT IT NEEDS

TO COMMUNICATE BETTER.

IT NEEDS TO DO TWO THINGS IN

PARTICULAR.

ONE, SHOW THAT IT IS MORE

SENSITIVE TO MARKETS AND WHAT'S

HAPPENING OUTSIDE.

THE RISK OF SPELL BACKS.

WHAT THE PRESIDENT HAS CALLED

GET A BETTER FEEL FOR WHAT'S

GOING ON.

AND THAT'S A COMMUNICATION ISSUE

THAT I THINK THE FED HAS

UNDERSTOOD JUDGING FROM WHAT

WE'VE HEARD FROM THE PRESIDENT

OF THE NEW YORK FED.

AND THEN SECOND, THE FED HAS TO

REALIZE THAT IT CANNOT KEEP A

REALLY IMPORTANT POLICY TOOL ON

AUTOMATIC PILOT.

THAT IT NEEDS TO BE MORE

SENSITIVE TO WHAT'S HAPPENING.

AND I THINK THAT THE FED CAN

REGAIN CONTROL AND WE CAN STOP

THE SELF-INFLICTED WOUNDS.

>> Sandra: TO THINK THE

PRESIDENT'S CRITICISM OF JEROME

POWELL AND HIS ACTIONS AS THE

FEDERAL RESERVE CHAIRMAN -- ARE

THEY WARRANTED?

>> Mr. El-Erian: NO.

I THINK THE PRESIDENT HAS A

POINT IN SAYING GET A FEEL FOR

WHAT'S GOING ON BEYOND THE

STRICT, NARROW DOMESTIC ECONOMY.

I THINK YOU DON'T WANT TO CROSS

OVER TO MUCH OF THE LINE OF

CENTRAL-BANK INDEPENDENCE.

CENTRAL-BANK INDEPENDENCE IS

VERY IMPORTANT FOR ECONOMIC

STABILITY.

IN ECONOMIC STABILITY IS KEY TO

ECONOMIC GROWTH.

AND INCLUSIVE GROWTH THAT BRINGS

UP EVERYBODY'S WELL-BEING.

SO I THINK THERE IS A POINT IN

TELLING THE FED BE MORE

SENSITIVE ABOUT THE SPELL BACKS

BUT YOU WANT TO MAINTAIN THE

AUTONOMY OF THE CENTRAL BANK.

>> Sandra: THERE IS JUST ONE

TRADING DAY LEFT IN 2018 AND

THAT OF COURSE IS TOMORROW AND

THE DOW IS ON PACE TO SUFFER ITS

WORST MONTH OF DATING BACK 2009.

THERE'S AVERAGELY CONCERNED ON

MAIN STREET.

IF YOU COULD LOOK OUT INTO THE

NEW YEAR AND TELL US WHAT YOU

SEE AS FAR AS THE ECONOMY AND

THE STOCK MARKET, WHAT ARE THE

BIGGEST RISKS AND THE BIGGEST

ASSETS AT THIS MOMENT?

>> Mr. El-Erian: I THINK THE

MOST LIKELY OUTCOME IS

DECOUPLING.

THE ECONOMY WILL REMAIN STRONG,

GROWING UP 2.5-3%.

IF WAGES WILL CONTINUE TO RISE

AT 3% OR NORTH OF THAT AND THE

ECONOMY ON A STAND-ALONE BASIS

WILL LOOK FINE BUT BECAUSE OF

WHAT'S HAPPENING IN THE REST OF

THE WORLD, BECAUSE LIQUIDITY

CONDITIONS HAVE CHANGED, MARKETS

WILL REMAIN VOLATILE.

SO DON'T BE SURPRISED IF YOU SEE

THESE THOUSAND POINT SWINGS IN

THE DOW.

THAT IS OUR NEW REALITY FOR A

WHILE AND IT REFLECTS THE FACT

THAT WE ARE COMING FROM A VERY

GOOD 2017.

PEOPLE FORGET THAT.

EVERYTHING WENT RIGHT INTO

THOUSAND 17.

HIGHER RETURNS, NO VOLATILITY

AND GREAT CORRELATION.

SO I THINK OF THIS AS A

NORMALIZATION.

IT DOESN'T FEEL GOOD IN THE

SHORT TERM BUT IT'S OKAY OVER

THE LONG-TERM.

>> Sandra: YOU SAY IT DOESN'T

FEEL GOOD.

IT JUST LAST WEEK IT WAS MONDAY,

CHRISTMAS EVE, THE WORST

CHRISTMAS EVE PERFORMANCE FOR

THE U.S. STOCK MARKET ON RECORD.

EVERYBODY CAME BACK FROM

CHRISTMAS DAY, WEDNESDAY, THE

DOW MORE THAN A THOUSAND POINTS,

THE LARGEST SINGLE DAY POINT

GAIN IN STOCKMARKET HISTORY.