The prominent economist known as “Dr. Doom” warned this week that he sees the Federal Reserve’s scramble to tighten policy leading to either a hard landing for the US economy or persistently high inflation.
Nouriel Roubini, CEO of Roubini Macro Associates, said the Fed’s benchmark interest rate needed to rise much more than its current range of 2.25% to 2.50% to successfully weather a “strongly inflationary” in the United States.
“The fed funds rate would have to go well above 4% – 4.5%-5% in my view – to really push inflation towards 2%,” Roubini said in an appearance on Bloomberg on Monday. “If that doesn’t happen, inflation expectations will go haywire.”
“Or if that happens, we’re going to have a hard landing,” Roubini added. “Either way you get a hard landing or you get inflation out of control.”
Inflation has shown signs of improvement this month, with July’s consumer price index coming in below expectations at 8.5%. The improving reading prompted investors to hope that the Fed could continue a series of milder interest rate hikes while aiming to bring inflation back to its 2% target.
The Fed’s most recent projections from June indicate that the central bank expects its benchmark rate to reach around 3.375% by the end of this year and close to 3.8% by the end of this year. next year – a trajectory that, according to Roubini, would be insufficient to bring inflation back down.
“Markets expecting a pivot and the Fed’s rate cut next year sound crazy to me,” he added.
Roubini acknowledged that inflation “may have peaked” in the United States, although he warned that any escalation in the Russian-Ukrainian war or further COVID-19 lockdowns in China complicate the situation.
While energy prices have moderated in the United States, the price of food, housing and other shelter remains at its highest in decades.
Roubini, 64, was once an economist on former President Bill Clinton’s Council of Economic Advisers.
He earned the nickname “Dr. Doom” for his pessimistic views on the economy, including an accurate prediction of an impending real estate crash before the Great Recession.
New York Post