US, Europe Heading for Recession Amid ‘Perfect Storm,’ Economist Nouriel Roubini Warns

Nouriel Roubini, professor at New York University, speaks during the 2022 Concordia Annual Summit in New York, on Sept. 21, 2022. (John Lamparski/Getty Images for Concordia Summit)

America, Europe, and other advanced economies will likely have a recession this year amid soaring inflation, according to renowned economist Nouriel Roubini.

Roubini issued the warning during an interview with Australia’s ABC on Mar. 2, noting that the latest economic data coming from the United States, Europe, and other advanced economies show that inflation now is quite “sticky.”

The economist, who is nicknamed “Dr. Doom” for being one of the first economists to call the 2008 recession, stated that the central banks in those nations are facing a “dilemma” as they need to raise interest rates higher to fend off inflation, but that doing so could force the economy to contract soon.

If the central banks don’t raise inflation rates further, then there will be a “de-anchoring of inflation and inflation expectation,” which could lead to macroeconomic instability, according to Roubini.

“So I expect that we’re going to have a recession, in the U.S., in Europe, in other advanced economies at the time when inflation is not back to 2 percent, that’s a definition of a stagflation recession,” said Roubini, a professor of economics at New York University’s Stern School of Business.

‘Perfect Storm’ Brewing

The economist noted that a “perfect storm” is brewing this year—inflation, recession, stagflation, and a potential debt crisis—which could result in a “great stagflationary debt crisis.”

Stagflation is characterized a period of slow economic growth (or stagnation), rising inflation, and rising unemployment happening at the same time. Stagflation is an issue for economic policymakers as actions aimed at reducing inflation could further exacerbate unemployment

Roubini said that stagflation is “the worst” because of the increased loss of jobs, high unemployment, weakness in the labor market, and inflation outpacing wage growth.

“So it’s across the board to even those who have a job, to their real wages, because prices are rising more than wages, and some people lose their jobs and their income,” he said. “So stagflation is the worst of all worlds for workers.”

Roubini previously warned of the possibility of stagflation in an opinion piece for Time magazine in October. Other economists have issued similar warnings.

Various recent inflation data have shown that prices are still higher than expected, including the Personal Consumption Expenditures (PCE) Price Index—which measures the prices that people living in the United States are paying for goods and services and is the Federal Reserve’s preferred measure to gauge inflation.

Fed Says Inflation Data ‘Too Hot’

The core PCE Price Index, which excludes the volatile food and energy sectors, was up to 4.7 percent from a year ago, up from 4.6 percent, while core PCE prices, again excluding food and energy, were up 0.6 percent month over month, up from 0.4 percent.

Many economists now widely expect the Fed to further tighten its monetary policy to reach its 2 percent target rate.

In December, Fed officials forecast that the federal funds rate would rise to a range of 5.0–5.25 percent, and then the central bank would hit pause.

On Thursday, Fed Governor Christopher Waller said that recent data suggest that consumer spending isn’t slowing down much and that the labor market is still running at an unsustainable level combined with inflation that won’t budge.

“On the other hand, if those data reports continue to come in too hot, the policy target range will have to be raised this year even more to ensure that we do not lose the momentum that was in place before the data for January were released,” Waller said in remarks at a meeting of the Mid-Size Bank Coalition of America in Los Angeles, California.

Roubini told Australia’s ABC that he believes the Fed would likely need to lift benchmark rates “well above” 6 percent if it wants to reach its 2 percent target.