Source: Finance Association
Author: Bian Chun
① The famous economist Roubini, known as “Doctor Doomsday,” warned that the US is facing two risks that could cause the economy to fall into recession; ② the first risk is the possibility that the economy will “not land”; ③ the second risk is that the conflict between Israel and Hamas may spread to other parts of the Middle East region.
Nouriel Roubini (Nouriel Roubini), a famous economist known as “Doctor Doom,” warned a few days ago that the US is facing two risks that could cause the economy to fall into recession. He said that despite the strong economic growth and labor market in the US, the risk of a recession persists.
Roubini is known for continuing to be bearish on the market and economy. In an interview with the media on Thursday, he said that although the possibility of a soft landing in the US economy is now greater than it was a year ago, the risk of a moderate recession cannot be ignored because there are still two forces that may push the US economy into recession.
He said,The first risk is the possibility that the economy will “not land”That is, GDP growth remains strong, while core inflation remains high. Roubini warned that this would cause the Fed to raise interest rates further. This move could lead to excessive tightening of the financial environment and push the US into recession.
Although the Federal Reserve has left the door open to possible future interest rate hikes, most investors seem to think that the cycle of interest rate hikes is over. According to CME's FedWatch tool, the market expects the possibility that the Fed will raise interest rates by another 25 basis points in the first quarter of 2024 is only 20%-25%.
The second risk is,The conflict between Israel and Hamas could spread to other parts of the Middle East, involving Iran and other major oil producers in this conflict. This could spur oil prices to soar by as much as 50%, triggering a stagflationary shock like in the 1970s, leading to a recession.
“Therefore, you cannot rule out the possibility of a short-term, mild recession next year, although at present it seems less likely than a soft landing.” Roubini said.
Financial markets have ignored the possibility of the spread of the Middle East conflict
Roubini pointed out that the stock market currently does not seem to have taken into account the risk of the spread of the Arab-Israeli conflict, and investors who expect the conflict between Israel and Hamas to be contained may eventually be surprised.
He warned that if the conflict spreads, the stock market could continue its recent adjustments and fall into a bear market. Meanwhile, as investors flock to safe-haven assets such as US Treasury bonds, bond yields are likely to fall sharply.
“Financial markets, whether the oil market, the bond market, the stock market, or even the gold market, have underestimated the possibility that these conflicts will turn into regional conflicts.” He said. “I think the possibility of a second risk occurring is quite high.”
According to data published on the United Nations website on November 1, since the outbreak of a new round of the Arab-Israeli conflict on October 7, more than 8,600 people have died on the Palestinian side, and about 1,400 people have died on the Israeli side. The death toll on both sides is over 10,000. This has become the worst round of conflict between Palestine and Israel in 20 years.
Edit/Chris