Global Upheavals To Tarnish U.S. Economic Exceptionalism: El-Erian

Global political and geopolitical upheavals, coupled with limited prospects for significant improvement, threaten the endurance of US economic exceptionalism, Mohamed A. El-Erian wrote for Project Syndicate.

Globally, economic fragmentation may drive countries to diversify reserves away from the US dollar and explore alternatives to Western payment systems.

El-Erian, President of Queens’ College at the University of Cambridge and professor at the Wharton School of the University of Pennsylvania, noted that while the US is expected to continue outperforming its peers, the range of possible economic outcomes has widened.

"Absent a major policy reset, my baseline scenario for the US includes a somewhat lower immediate growth rate, even as the economy outperforms its peers, and sticky inflation," El-Erian stated.

"This will present the Fed with a choice: accept above-target inflation or attempt to bring it down and risk tipping the economy into recession."

He highlighted the dual nature of the global economic landscape.

On one hand, downside risks such as economic fragmentation and geopolitical tensions are growing.

On the other, innovations in fields like artificial intelligence (AI), life sciences, food security, health care, and defense could accelerate productivity and sectoral transformation.

Globally, economic fragmentation may drive countries to diversify reserves away from the US dollar and explore alternatives to Western payment systems. US ten-year government bond yields—a global benchmark—are projected to hover between 4.75% and 5%.

Meanwhile, financial markets may find it increasingly challenging to maintain their exceptional standing amidst a turbulent geo-economic environment.

El-Erian emphasized the importance of regularly reassessing economic baselines against real-world developments in 2025, given the widening dispersion of possible outcomes.