- “Dr. Doom” economist Nouriel Roubini warned inflation won’t be transitory like the Fed insists.
- He told Yahoo Finance the economy could crash if the Fed changes its policy too soon to combat inflation.
- He said the central bank can’t tighten because there’s so much debt in the system.
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Economist Nouriel Roubini told Yahoo Finance on Wednesday that rising inflation will not be temporary, and the Federal Reserve is at risk of crashing the economy if it changes policy too soon.
The CEO of Roubini Macro Associates, who has been nicknamed “Dr.Doom” for his bearish forecasts, cited supply bottlenecks, pent-up demand from excess savings during the pandemic, and sharp price increases in housing, commodities, and wages as signs of overheating inflation.
Roubini’s stance stands in contrast with that of the Fed’s, which has insisted that the any increase in inflation will be transitory. The central bank’s outlook on inflation has guided its decision to keep interest rates low and continue with loose monetary policies.
“Inflation expectations are rising, the dollar is weakening, and that implies imported inflation and higher dollar price of commodities. And the Fed wants to overshoot 2% with the risk of the ongoing inflation expectation,” Roubini said.
“And the Fed cannot tighten because there is so much debt in the system, if they’re going to try to tighten too soon, the system is going to crash. So they are in a debt trap. They’re in a fiscal dominance,” he added.
Roubini also said that the economy could be facing 1970’s-style inflation that looks like “stagflation,” or a combination of high inflation and recession. Just like in the 1970’s, Roubini sees a negative supply shock that will “hit the economy, reduce potential growth, increase the cost of production. And like in the ’70s, with loose monetary and fiscal policy going to lead to stagflation.”
He listed nine different factors that could lead to negative supply shocks. De-globalization, climate change, cyber attacks, and an aging global population were among the few.
“So you have nine factors that are all reducing potential output, increasing the cost of production and the price of goods and services. And with easy monetary fiscal policy, we’re going to end up with stagflation like the seventies over time,” said the economist.