Renowned economist Nouriel Roubini has predicted that from the end of 2022, the US and the rest of the world will enter a “long and nasty” recession that could last through 2023. The US S&P 500 stock index is expected to enter to a sudden correction period. He is known for correctly predicting the 2008 financial crisis.
“Even a normal recession could send the S&P 500 down 30%,” Roubini, chairman and CEO of Roubini Macro Associates, said in an interview Monday. He said the index could drop as much as 40% if the ” real hard bank” predicting actually happening.
Roubini, nicknamed “Doctor Doom” for predicting the bursting of the 2007-08 housing bubble, said those predicting a shallow US recession should focus on high corporate and government debt ratios. “Many zombie institutions, households, businesses, banks, shadow banks and even nations will die,” he said, as interest rates rise and debt service costs rise.
Source: IMF
Roubini said it was “mission impossible” for the Fed to reach 2% inflation without a hard landing, a nearly impossible task. He expects US interest rate hikes this week to be 75 basis points at this week’s Federal Open Market Committee (FOMC) meeting and 50 basis points each at the November and December meetings. The target range for the Federal Funds (FF) rate will be 4-4.25% by the end of the year, if the rate increase is as Roubini expects.
But stubborn inflation, especially in the wage and service sectors, will “force” the FOMC to raise rates further, with the federal funds rate heading towards 5%. In addition, the negative supply shock associated with the new coronavirus crisis, the war between Russia and Ukraine, and China’s “zero corona” policy will increase costs and slow down economic growth. Under such circumstances, he said it will be difficult to achieve the “growth recession” the Fed is currently aiming for, which is to control inflation due to a long period of low growth and rising unemployment.
Roubini said that even if there was a global recession, there would be no financial stimulus. He said the government was over-indebted and was “running out of fiscal stimulus.” He added that the high inflation situation would also mean “overheating aggregate demand in the case of monetary stimulus”.
As a result, Mr Roubini predicts stagflation similar to the 1970s and a huge debt overhang similar to the financial crisis. “It will not be a short, shallow recession.
Original title:Roubini Sees Stocks Sinking 40%, US in ‘Long, Ugly’ Recession (抜粋）
