Fed rate hikes ‘mega-threat’ to US economy: ‘Dr. Doom” Roubini

Nuriel Roubini ` images

• Nouriel Roubini says the economy is headed for a crash.
• The “Dr. Doom” economist says that rate hikes and a mountain of debt will push the US into a recession.
• In an interview with Bloomberg, Roubini broke down the “trilemma” that markets are currently facing.

The Federal Reserve’s monetary tightening campaign is taking a serious toll on the US economy, says famous market commentator Nouriel Roubini, predicting markets are headed for a financial crash.

The central bank’s efforts in the name of fighting inflation are an economic “mega-threat,” Roubini told Bloomberg TV on Friday.

“When interest rates rise, the value of securities and loans falls, and then we have mass liquidity and solvency problems,” said the economist.

This is far worse than other periods of monetary tightening and rising borrowing costs, he added.

While interest rates have risen well above their current level of around 5% for the federal funds rate over the past several decades – which hovered around 20% in the 1980s and sparked a severe recession – this cycle is much harder for markets to sustain as for the public and private debt has exploded.

“So we have the worst [1980s] reduce the growth that causes inflation in terms of a negative supply shock,” Roubini said.

He added: “Now we are entering a recession and financial instability. [We’re] have to raise interest rates because inflation is too high. We get inconsistency in a trilemma. We cannot achieve price stability, sustain economic growth and at the same time have financial stability. So eventually… an economic and financial crash.”

The famous economist has long been a market naysayer. He forecasts massive stock declines and economic crises triggered by recent upheavals like COVID-19. Roubini was also among the commentators who predicted the bursting of the housing bubble and the ensuing 2008 financial crisis.

His current outlook calls for a combination of 2008 and 1970s-style stagflation to slow the US economy.

WATCH NOW: Insider Inc.’s Popular Videos

Loading…