Economist Nouriel Roubini told Yahoo Finance on Wednesday that the rise in inflation will not be temporary and that the Federal Reserve risks collapsing the economy if it changes policies too soon.
The CEO of Roubini Macro Associates, who has been dubbed “Dr. Doom” for his bearish forecasts, cited supply bottlenecks, pent-up demand due to excess savings during the pandemic and sharp increases in prices. housing, commodity and wage prices as signs of overheated inflation.
Roubini’s position contrasts with that of the Fed, which insisted that any increase in inflation would be transitory. The central bank’s inflation outlook guided its decision to keep interest rates low and pursue accommodative monetary policies.
“Inflation expectations are rising, the dollar is weakening, which implies imported inflation and a rise in the dollar’s price of commodities. And the Fed wants to exceed 2% with the risk of persistent inflation expectations “said Roubini.
âAnd the Fed can’t tighten because there’s so much debt in the system, if they try to tighten too soon, the system is going to collapse. So they’re in a debt trap. in fiscal dominance, “he added.
Roubini also said the economy may be facing 1970s-style inflation that looks like “stagflation” or a combination of high inflation and recession. Just like in the 1970s, Roubini sees a negative supply shock that âwill hit the economy, reduce potential growth, increase the cost of production. And as in the 1970s, an accommodating monetary and fiscal policy will lead to stagflation â.
He listed nine different factors that could lead to negative supply shocks. Deglobalization, climate change, cyber attacks and the aging of the world’s population were among the few.
“So you have nine factors that all reduce potential output, raise the cost of production and increase the price of goods and services. And with an accommodating monetary fiscal policy, we’re going to end up with stagflation like the 1970s over time.” , said the economist.