The former defender believes his old side will struggle to compete for signings without the lure of European football.
The Reds are currently four points behind fourth placed Manchester City after recent losses to Manchester United and Arsenal saw their challenge for a Champions League place slip further away.
However, the point gap is not insurmountable by anyone’s reckoning and the former defender believes it is imperative that the club make the top four so that they can compete for the world’s biggest stars.
Having said that, he does admit it seems to be a club policy to try and bring in young players that can be developed rather than ready-made players.
“If they miss out on the CL you'd expect them to struggle to compete,” he said.
“I don't think whether they can compete or not is the issue, it seems as though it's a club policy to go the other way and invest for the future. Even when they qualified last season the bought in young players rather than the superstars.”
The Sky Sports pundit also believes that the owner of the club will stick with manager Brendan Rodgers, regardless of their final placing.
Rodgers had come under pressure earlier in the season as Liverpool languished at the wrong end of the table, but a fine run of form saw them quickly rise up the table and into an FA Cup semi final against Aston Villa.
As far as Carragher is concerned, success is judged on a season-by-season basis and the owners clearly rate their current boss anyway.
“I think you judge things season by season now,” he added.
“But he's a top manager and is very highly rated, and he has done well with Liverpool. The owners obviously rate him, which is why they rewarded him with a new deal.”