Inflation data in the United States and the expectation that the Federal Reserve will raise interest rates -it took place on Wednesday- caused a strong contraction in the price of shares in recent weeks, but the economist Nouriel Roubini anticipates that this is only the beginning.
Roubini is nicknamed Doctor Catastrophe in the field of finance because their forecasts are usually fatalistic but also true. He is one of the investors who anticipated and predicted the crisis of 2008 when the mortgage market in the United States collapsed.
“It’s not going to be a short and shallow recession; it’s going to be serious, long and ugly,” The economist said how the market will evolve from now on and anticipated that it will start at the end of this year but will last all of 2023 until the FED led by Jerome Powel contains inflation in the US.
Roubini’s forecasts not only anticipate this contraction in the world economy: “Even in a normal recession, the S&P 500 can drop 30%, but with a real hard landing it could drop as much as 40%”said the economist during an interview with Bloomberg.
Rates, inflation and recession
Roubini is the chairman and CEO of Roubini Macro Associates, as well as a professor at New York University, and like other leading economists, he sees a bleak future for global finance with sharp declines in equity prices and with money taking refuge in US bonds.
“Many zombie institutions, zombie households, companies, banks, shadow banks and zombie countries are going to die. So we’ll see who’s swimming naked.” The economist anticipated the consequences of the recession and the increase in debt costs that will be produced by the rise in FED rates.
During this period of contraction, shadow companies and banks, such as hedge funds, private equity funds and credit funds, “are going to implode,” he warned.
In addition, he analyzed that with the arrival of the recession “There is no need to wait for fiscal stimulus remedies, since governments with too much debt are running out of fiscal bullets” and high inflation would imply that “if a fiscal stimulus is granted, aggregate demand overheats.”
Roubini does not see an easy solution to the problem of US inflation and pointed out that achieving “an inflation rate of 2% without a hard landing will be an impossible mission”, for which he expects an increase in interest by the Fed above 5 %.
Source: The Chronicler
