An AI ‘rational bubble' will provide significant productivity for the economy – El-Erian

[AI - Artificial Intelligence digital concept. innovations and technology]
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The U.S. economy is experiencing an AI-driven boom that is helping America outperform global markets, according to Mohamed El-Erian, Allianz chief economic advisor.

In an interview with CNBC, El-Erian emphasized that the current investment surge in artificial intelligence technologies represents a “rational bubble” that promises significant productivity gains for the economy.

“There is no doubt that we are in an AI driven economy, and for good reason, the promise of AI in terms of productivity gains is huge,” El-Erian said.

He noted that without AI, the U.S. economy “wouldn’t look as good” and “wouldn’t be outperforming the rest of the world,” but maintained that the technological investment race is ultimately beneficial despite the likelihood that only “a handful of winners” will emerge from numerous competing AI companies.

El-Erian also addressed the simultaneous rise in gold prices (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]), attributing this trend to international concerns about the U.S. dollar (DXY [https://seekingalpha.com/symbol/DXY]) rather than domestic economic weakness.

“The rest of the world, while they trust U.S. private sector, are worried about the dollar,” he said, pointing to how foreign investors are increasingly hedging their U.S. market positions while central banks and institutional investors gradually diversify into gold (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]).

On the topic of private credit, the economist acknowledged some market strains but dismissed serious stability concerns. “Whether you call it cockroaches or ants, they’re correct. We’ve seen a few strains. We are going to see more. But they’re not termites,” he said, emphasizing that current financial stresses are not “eating away at the foundation of financial stability.”

El-Erian concluded with a positive outlook on the broader financial system, suggesting that even with isolated cases of overextended risk-taking, private credit markets are ultimately beneficial by providing financing options to companies that might otherwise struggle to secure funding.

He extended this optimistic view to developing economies as well, noting that expanded credit access in these markets is “a really good thing.”

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