Crypto critic and economics professor Nouriel Roubini warns that markets are in for a major shock this year.
In a new interview with Bloomberg Television, the economist known as “Dr. Doom” say that it will prove much more difficult to reduce inflation than central banks currently expect, and that they will eventually raise interest rates even further.
“I think people in the stock markets think that central banks are done raising rates and that’s why they’re going to cut rates to zero. I think that’s highly unlikely…
[Central banks] possibly raise rates further in June. Certainly, the ECB (European Central Bank) is not done yet. And there is still a lot of inflation around the world. The big surprise of this year is going to be [that] inflation will not fall as much as central banks expect.
Therefore, central banks will have to make a difficult choice whether to raise interest rates further [which brings more] risks of a hard landing and financial instability or not raising rates, but then you get the anchoring of inflation and inflation expectations. That is the complacency of the markets.”
Roubini says investors are largely betting on a market recovery following the Federal Reserve’s rate cut after a short and shallow recession later this year. However, he warns that a market correction is likely before rate cuts.
“Markets believe that inflation has peaked and will fall sharply. There may be a short and superficial recession [that] will lead them to lower interest rates. So the markets are quite optimistic about a short and superficial recession or even a soft landing and then recovery of the markets. Central banks tell them, ‘No, we’re not done yet. We are not going to lower the rate this year.’ And there is even a risk of an economic correction. Even the Fed staff expects a recession later this year.”
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