• Nouriel Roubini, a crypto critic and economics professor, is warning that the markets are in for a big shock this year due to inflation.
• He believes central banks will have to make a tough choice between raising rates more or not raising them at all.
• Investors are betting on a market recovery prompted by the Federal Reserve cutting rates after a short and shallow recession later this year; however, Roubini warns of a market correction before any rate cuts occur.
Nouriel Roubini’s Warning
Crypto critic and economics professor Nouriel Roubini is warning that the markets are in for a big shock this year due to inflation. In an interview with Bloomberg Television, he states that central banks may raise rates further than expected in June due to continued high levels of inflation around the world.
Risk of Big Correction
Investors are largely betting on the Federal Reserve cutting rates after a short and shallow recession later this year, leading to market recovery. However, “Dr. Doom” cautions that there is still a risk of a big correction of the economy before any rate cuts occur – even staff members of the Fed expect a recession later this year.
Central Banks’ Tough Choice
Roubini believes central banks will have to make a tough choice between raising rates more or not raising them at all. On one hand, they risk causing financial instability if they raise rates further; but on the other hand, not raising them could lead to anchoring of inflation and inflation expectations.
Complacency in Markets
The economist has noted complacency in equity markets – investors think central banks are done with raising rates and will therefore cut them to zero, which is highly unlikely according to him.
Roubini’s warnings about potential market shocks should be taken seriously given his track record as an accurate forecaster during past economic downturns such as the 2008 global financial crisis and bursting of the dot-com bubble in 2000-2001. It remains to be seen what action central banks take going forward and how it impacts global markets overall in 2021 and beyond..