US recession will be ‘long’ and ‘severe’: Economist
An economist known for his bearish tendencies warns Americans that the recession will be “long” and “severe”. Nouriel Roubini, also referred to as “Doctor Dom,” said on Monday the recession could bring “all-round” financial hardship.
Despite the strong jobs report, the US economy left many Americans seeing a rise in their grocery bills despite lower overall inflation in July. The Federal Reserve has tried to curb inflation by raising interest rates, but some experts say the country is heading into a recession or may already be in a recession.
“We are in a sharp slowdown, we had two negative quarters of growth in the first half [of 2022]”The recession will be long, protracted, severe, and tied to financial distress across the board,” Roubini, the Iranian-American economist who accurately predicted the housing bubble burst in 2008, told Bloomberg on Monday.
The Federal Reserve recently raised interest rates by another 75 basis points in late July to thwart an 8.5 percent inflation rate, which followed a similar increase in June – marking the largest consecutive increases seen in decades. Roubini pointed out that the increases are not enough to combat inflation.
Indeed, Roubini predicts that the Fed will need to raise interest rates further to raise the 8.5 percent inflation rate to the 2 percent target.
“The federal funds rate would have to exceed 4 percent to push inflation toward 2 percent,” he told Bloomberg. “If it doesn’t, inflation expectations will be shaken, or they will fall sharply.”
But despite growing concern about a recession, Fed rates remain relatively low.
According to an article by Bankrate, despite the Federal Reserve raising interest rates, the borrowing rate is still historically low. The federal funds rate has remained below its historical average of 4.61 percent since 2007. From 2008 to 2015, the federal funds rate was zero.
The federal funds rate reached its highest point in the early 1980s, when it rose to 20 percent.
Roubini said he felt that although inflation had peaked, he was not sure how quickly it might decline.
“I don’t think monetary policy is tight enough to push inflation to 2 percent fast enough,” he said.
During the last week of July, a Wikipedia page about “recession” erupted in an editorial war after Biden administration officials downplayed numbers showing that the United States had entered an unofficial recession after two quarters of negative economic growth. Two consecutive quarters of diminishing GDP is an unofficial definition of a recession.