Nouriel Roubini – known for predicting the mortgage collapse that helped spark the 2008 financial crisis – said the Federal Reserve It could struggle to tighten monetary policy if growth slows and markets tumble like they did in the fourth quarter of 2018.
“They’re going to falter,” the president and CEO of Roubini Macro Associates said Tuesday in an interview in Dubai with Bloomberg Television. “They are going to postpone any term of the ‘tapering’ or increase in rates.”
Stagflation, in which growth stagnates while inflation picks up, will persist “for several quarters,” he said. The price indicator for basic personal consumption spending in the United States will remain above 3% next year, he said.
Concerns about the persistence of inflation have increased as the costs of oil, coal and natural gas rise, increasing pressures on prices. Supply chain bottlenecks and labor shortages are fueling significant increases in core and headline inflation while hurting economic growth, Roubini said.
“It becomes a very difficult dilemma for central banks,” he said. If growth slows, the Fed “will end up being ‘dovish.'”
Slower economic growth in EE.UU. It will mean the Fed is unlikely to raise interest rates next year, although the reduction in asset purchases is expected to be announced at its next monetary policy meeting, Jan Hatzius, chief economist at Goldman Sachs Group, said on Monday. Inc.
If the Fed is ‘dovish’ and inflation becomes volatile, US bond yields will continue to rise as investors discount a higher inflation risk premium, Roubini said.
Investors can hedge against the risk of higher inflation by reducing bond maturities or investing in inflation-protected treasury securities, which are tied to consumer prices, he said. Commodities, such as gold, metals, oil and some forms of real estate, such as infrastructure assets, will also offer protection against price pressures, he said.
Oil prices could rise to US $ 100 a barrel in the coming months, from about US $ 83 on Tuesday, amid “perceived shortages,” Roubini said. However, that will also depend on whether the OPEC + alliance restores supply and whether Iranian barrels can return to world markets, he said.
“I see an upward trend in the prices of oil, coal, natural gas and other energies,” he said. “The demand is growing.”
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