Nouriel Roubini, the economist who predicted the global economic collapse in 2008 to serve itself the nickname Dr. Doom, warned traders against relying on the Federal Reserve for a quick decision on instability in the financial market, prepared by President Donald Trump’s customs duty for international trade.
A week ago, Trump announced sweeping tariffs against many nations, including a fierce tax on Chinese imports, which has now been lifted to 104%. Financial markets cratered to concerns that the move will draw the US and other economies into recession.
NASDAQ 100 has lost 12%, and Bitcoin (BTC), the largest cryptocurrency by market value, dropped 10% and hit prices below $ 75,000 at one point. Volatility in the US Ministry of Finance exploded, with yields of longer dated bonds that waves, sent prices lower, even though stock markets swung. It has raised fears of a full-blown dollar-liquidity crisis such as the one observed five years ago during the Covid crash.
Speculation is common for the Federal Reserve to soon take steps to facilitate liquidity conditions, as it did by 2020, which puts a floor under asset prices. Dealers have priced in at least five quarters of interest rate cuts from FED chairman Jerome Powell for this year, according to CME’s FedWatch tool. Roubini suggests it will not happen.
“Of course, there is a chicken game between Trump -tit and Powell set. But I would say that the strike price for the Powell set will be lower than the strike price for Trump, which means Powell will wait until Trump is blinking,” Roubini told Bloomberg.
In other words, Powell is likely to wait for Trump to temper his rhetoric before he intervenes to stabilize market volatility. This approach makes sense, as the current instability in the market is largely a result of Trump’s tariffs.
The feeling could quickly turn with a single-social media post from Trump announcing a possible trade agreement or negotiation with China. An episode from the beginning of this week is symptomatic. On Monday, an unconfirmed report on a customs break triggered a sharp increase in market assessments, only for the news to later became debunked as fake.
Sticky inflation, no recession
Roubini, who runs Roubini Macro Associates, expects inflation to be sticky in a new world of higher tariffs that damage bonds longer dated. It explains partly the swoon in the 10- and 30-year-old US Treasury and the resulting increase in yields.
At the same time, he said he expects the United States to avoid slipping into a recession, as opposed to market Zeitgeist and pricing in betting platforms, which suggests an over 50% chance of the economy facing back-to-back quarterly contractions in growth rates.
