What's the situation? “Doctor Doom” Roubini warns that interest rates must continue to be raised to avoid stagflation, and at the same time suggests shorting US stocks

Golden10 Data ·  09/18 23:07

Source: Golden Ten Data

Nouriel Roubini (Nouriel Roubini), a well-known US economist, warned that the Fed may not have finished raising interest rates yet. Furthermore, the European Central Bank and the Bank of England must also continue to raise interest rates to prevent “stagflation.”

Roubini said that the recent rise in oil prices will keep overall inflation high, and any talk about easing monetary policy is too early. He said that the European Central Bank and the Bank of England are facing greater difficulties than the Federal Reserve because European prices are still rising rapidly, while economic growth is slowing down.

In an interview on Monday, Roubini said,The Bank of England “should raise interest rates all the way to 5.75%”. Currently, the Bank of England's key interest rate is 5.25%, and it is expected to be further raised by 25 basis points this week.

Roubini is currently a professor of economics at NYU's Stern School of Business, and is famous for his pessimistic remarks. He was dubbed “Doctor Doom” for predicting the collapse of the US real estate market and accurately predicting potential problems in the US economy before the 2008 financial crisis broke out.

On Monday,He suggested shorting US stocks for the rest of the year and said investors were too optimistic about the credit and bond markets. He warned that given the state of the global economy,The US stock market is likely to fall 10%, adding that other regional stock markets are likely to perform worse.

The ECB and the Bank of England are in trouble due to excessive inflation and a faltering economy, but Roubini said they need to continue raising interest rates to beat inflation.

He said, “Both the ECB and the Bank of England are facing a dilemma. On the one hand, a contraction in economic activity may cause them to stop raising interest rates. On the other hand, if inflation remains well above target, they may need to raise interest rates further”.

By contrast, the US is in a better position, and the “good news (strong data)” suggests that the economy will not have a “hard landing.” However, according to Roubini,The market's expectation that the Fed will cut interest rates early next year is wrong. Instead, heIt is anticipated that the Fed may still need to raise interest rates further, and the first rate cut will “probably happen in the middle of this year (2024).”

He said, “Policymakers can't say they've done their job. Overall inflation is rising, oil prices are rising, and it is possible to raise interest rates again”. Despite this, the Fed is expected to keep interest rates unchanged in the 5.25%-5.5% range this week.

Roubini believes that the dovish signal recently sent by the Bank of England is a “trouble.” “These signals tell us they're not sure if they want to raise interest rates further”. But Roubini warned,If interest rates are not raised further, “inflation may get out of control, leading to real stagflation.”

As the economy began to slow, the Bank of England changed its guidelines. The UK output fell in July and the unemployment rate rose. Policymakers are talking about whether to keep interest rates high for a longer period of time in lieu of more rate hikes to curb prices. Currently, the country's CPI rate is 6.8% per annum, which is more than three times the 2% target.

This week's official data is expected to show that due to rising oil prices,The UK inflation rate rebounded to 7.1% in August, making the Bank of England's policy decision on Thursday more complicated. Meanwhile, the ECB raised interest rates by 25 basis points to 4% last week, and said its interest rate hike cycle is nearing its end.

However, although Roubini believes interest rates need to be raised, he also said that this may cause further trouble.

Roubini pointed out,“There is a risk of financial instability”, as highlighted by the UK's pension crisis a year ago and the regional banking turmoil in the US earlier this year. “I don't think we're out of trouble because interest rates will have to stay high for longer”.

He added that structural changes in the global economy, such as population aging and supply chain geopolitics, will keep inflation high. He said,Over time, central banks will have to raise their inflation target from 2% to 3% or 4%.

He said, “Whether on the supply side or the demand side, there are factors that indicate that the current 2% inflation target is an impossible task to complete. The new normal for inflation in advanced economies is likely to be between 3% and 4%; of course, this change is not an overnight event”.


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