Renowned economist Nouriel Roubini, known as Dr. Doomsday, recently warned that the United States is facing two risks that could lead to an economic recession. He stated that despite the strong economic growth and labor market in the United States, the risk of economic recession persists.
Roubini is known for consistently bearish markets and the economy. In an interview with the media on Thursday, he stated that although the possibility of a soft landing for the US economy now seems greater than a year ago, the risk of a mild recession cannot be ignored as there are still two forces that could push the US economy into recession.
He stated that the first risk is the possibility of the economy not landing, where GDP growth remains strong while core inflation remains high. Roubini warned that this would lead to further interest rate hikes by the Federal Reserve, which could lead to excessive tightening of the financial environment and push the United States into recession.
Although the Federal Reserve has opened the door for possible future rate hikes, most investors seem to believe that the rate hike cycle has come to an end. According to CME's FedWatch tool, the market expects that the probability of the Federal Reserve raising interest rates by another 25 basis points in the first quarter of 2024 is only 20% -25%.
The second risk is that the conflict between Israel and Hamas may spread to other parts of the Middle East, involving major oil producing countries such as Iran in the conflict. This may stimulate oil prices to soar by up to 50%, triggering stagflation shocks like in the 1970s, leading to economic recession.
Therefore, you cannot rule out the possibility of a short-term, mild recession next year, although it currently appears that this possibility is smaller than a soft landing, "Roubini said.
Financial markets overlook the possibility of the Middle East conflict spreading
Roubini pointed out that the stock market currently does not seem to include the risk of the spread of the Israeli-Palestinian conflict, and investors who expect the conflict between Israel and Hamas to be contained may ultimately be surprised.
He warned that if the conflict spreads, the stock market may continue its recent adjustment and fall into a bear market. At the same time, as investors flock to safe haven assets such as US treasury bond bonds, bond yields may decline significantly.
The financial market, whether it's the oil market, bond market, stock market, or even the gold market, underestimates the possibility of these conflicts evolving into regional conflicts, "he said. I think the likelihood of the second risk occurring is quite high
According to data released on the United Nations website on November 1st, since the outbreak of the new round of Palestinian-Israeli conflict on October 7th, more than 8600 people have died on the Palestinian side and approximately 1400 on the Israeli side. The death toll on both sides has exceeded 10000, making it the deadliest round of the Israeli-Palestinian conflict in 20 years.