Stock market and interest rate warning from economist who predicted crisis
Renowned US economist Nouriel Roubini, known as the crisis prophet and ‘doctor of doom’, shared his assessments and predictions on inflation, interest rates and the stock market.
Nouriel Roubini, the renowned US economist known as the ‘crisis oracle’ for predicting the 2008 financial crisis, said that the European Central Bank (ECB) and the Bank of England (BoE) should continue to raise interest rates to prevent “stagflation”.
Roubini, famous for his pessimism, said that the recent rise in oil prices will keep headline inflation high and that it is too early for any talk of easing monetary policy.
EUROPE’S DILEMMA IS BIGGER
Speaking to Bloomberg TV today, the US economist emphasized that the ECB and BoE face a bigger dilemma than the US Federal Reserve (Fed) because prices are still rising fast in Europe and growth is slowing, but they need to keep raising rates to keep inflation down.
“This is a dilemma for both the ECB and the BoE,” Roubini said. “On the one hand, the contraction of economic activity will perhaps lead them to stop raising rates. On the other hand, if inflation remains well above the target, they may need to raise much more.”
Roubini, a professor of economics and international business at New York University’s Stern School of Business, said the BoE should raise the policy rate, currently at 5.25 percent, to 5.75 percent.
Considering the recent “dovish” signals from the BOE as a problem, Roubini warned, “If there are no further rate hikes, the anchor of inflation may unravel and real stagflation may occur.”
The BoE is expected to raise interest rates to 5.50 percent at this week’s meeting. The ECB also raised the deposit rate to 4 percent, the main refinancing rate to 4.50 percent and the overnight lending rate to 4.75 percent with a 25 basis point increase last week.
Annual consumer inflation in the Eurozone remained at 5.3 percent in August, well above the bank’s official target of 2 percent. The rise in energy prices is effective in keeping inflationary pressures strong.
It is estimated that inflation in the UK rose from 6.8 percent in July to 7.1 percent in August.
USA AND STOCK MARKET EVALUATION
The famous economist argued that the US is in a stronger position, that there is “good news” indicating that there will be no “hard landing” in the economy, but that it is wrong for markets to expect an interest rate cut early next year, “Instead, the Fed may need to raise interest rates further and the first rate cut may come towards the middle of 2024.
Roubini said of the Fed, “They cannot say they are done. Headline inflation is rising, oil prices are rising, there is the potential for another hike.”
The Fed is expected to keep interest rates at 5.25-5.50 percent this week.
Roubini, who advised short selling in US stocks for the rest of the year and suggested that investors were too optimistic about credit and bond markets, warned that “a 10 percent drop in US stocks is possible given the state of the global economy” and added that other stock markets would be even worse off.