Action from Congress, not the Fed, is what's needed to grow the US economy, Mohamed El-Erian says

• Mohamed El-Erian says the US economy has relied too heavily on the Federal Reserve for growth.
• Instead, it should be legislation from Congress that drives sustainable growth in the economy.
• "We lost sight of how we grow our economy in a sustainable and inclusive fashion," El-Erian said.

After a decade of interest rate cuts and quantitative easing from the Federal Reserve, the US has lost its way on how to sustainably grow its economy, according to top economist Mohamed El-Erian.

In a new PBS Frontline documentary, Age of Easy Money, El-Erian highlighted that investors have become overly conditioned to rely on the Fed for ongoing stimulus to help boost the economy, when in fact that responsibility should fall to Congress. 

After the Great Financial Crisis of 2008, the Fed unleashed a torrent of stimulative measures like lowering short-term interest rates to near-zero and buying trillions of dollars of bonds to lower longer-term interest rates. The thinking goes that lower interest rates helps lower the cost of acquisition for big-budget items, incentivizing consumers to spend more money and companies to embark on big capital expenditures into their business.

But it has become apparent that while consumers took advantage of low interest rates to buy cars and homes, most companies used low interest rates to take on debt to buyback their stock rather than reinvest in their business.

"I think that we're going to look back on this era as being totally exceptional historically, and one where we didn't fulfill its potential. We lost sight of something critical: we lost sight of how we grow our economy in a sustainable and inclusive fashion," El-Erian said.

Instead, it should be Congress that drives a sustainable rebound in the economy through constant reinvestments in infrastructure and education, among other areas.

But a decade-long climate of political infighting has hamstrung much of the necessary actions Congress should be taking. 

That was on full display in Fed Chairman Jerome Powell's testimony to Congress earlier this month.

"Raising interest rates won't stop Senate Democrats and President Biden from overtaxing, overspending, over borrowing, over regulating," Senator Kevin Cramer of North Dakota said at the hearing.

"In an era of political dysfunction, we've become so dependent on the Fed, and on easy money, to drive the American economy," Frontline reporter James Jacoby said.

At the end of the day, it's tax reform and infrastructure spending that should be the main drivers of sustainable economic growth, and that's in the hands of Congress, not the Fed, according to El-Erian.

"The world of easy money went way too far, way, way too far," El-Erian said. "Let's do the other stuff that's needed. The stuff that really promotes genuine, durable, inclusive growth and not this stuff that creates artificial growth. We are capable of producing that. None of that is in the hands of the Fed. They don't invest in infrastructure. They can't reform the tax system. They can't help labor retraining. This is a political problem."