‘Read Econmic News Together’ Series

'Remarkable' market but there's a limit to relying on Fed policy, says El-Erian

A "Goldilocks" jobs report helped push themarket higher Friday, but at some point there needs to be a switch from centralbank policies to other actions to support the economy and markets, Allianzchief economic advisor Mohamed El-Erian said Friday.

"Most people recognize that this path cannotcontinue. That it's becoming more and more artificial," he said in aninterview with CNBC's "Closing Bell."

He is looking for some type of fiscal policy, structuralreforms to promote genuine economic growth, a way to deal with some debtoverhang and better regional architecture in Europe.

"What the markets are basically saying is that inthe short term, we can do the heavy lifting, but at some point we're going tohave an orderly hand-off. Otherwise we cannot maintain this huge gap betweenvaluations and fundamentals."

The S&P 500 ended within one point of its recordclose of 2,130.82 Friday, while the Dow Jones industrial average closed about250 points higher.

Friday's "remarkable" market speaks to the"Goldilocks" jobs report, El-Erian said.

"With the exception of short-dated Treasurys, youmade money everywhere," he said. "It was strong enough to give usassurances that we can withstand headwinds from Europe, but it wasn't toostrong and therefore it doesn't force the Fed to do anything soon."

Uncertainty over the labor market was one reason theFederal Reserve decided not to raise interest rates at its June meeting.

When asked if there was a global bond market bubble or ifit was a currency war parading around as a bond market, El-Erian replied thatit was both.

"It's a reflection of overreliance on central banks,and there's a limit to how long this can go on," he said.

There are several issues weighing on the bond market, hesaid: negative interest rates on over one-third of government debt, headwindsto European banks, Brexit and governments not being able to move on the economybecause of political polarization.

"We're creating more and more things, but in theshort run could go even further as long as there's this incredible faith thatcentral banks can do it all."