“Even if you have a short, shallow recession, typically from peak to trough, the S&P 500 is down 30%. [global financial crisis]it’s down to 50%” Rowby told Bloomberg on Wednesday.
“If we have something more serious than a short and shallow recession, but not as severe as the global financial crisis … you could potentially have another 25% drop in the markets,” Roubini told Bloomberg.
For months, Rousey has warned that the U.S. economy is facing a “hard landing” as the Federal Reserve raises interest rates sharply to fight inflation. In July, “Dr. Doom called predictions of a shallow recession “deluded” due to widespread “stagflation,” defined as a combination of stagnant economic growth and high inflation.
The market currently expects the Fed to raise its benchmark interest rate by around 5% in 2023 – from the current 3.75% to 4%. But Roubini sees a rate hike “closer to 6%” to tame inflation.
The Fed will hold its final policy meeting next week and announce its next interest rate hike, which is expected on Wednesday. According to CME Group, the market expects the central bank to increase by half a percent.
Roubini told Bloomberg that the ongoing hikes will disrupt credit markets and create greater stress for “zombie” businesses with bad balance sheets. He noted that many distressed companies were “effectively insolvent” before the Fed tightened policy.
“During the COVID crisis, these institutions, these corporations, not only did not collapse, but were saved when they went to zero rates. We even bought high-yield bonds, and so everything was mortgaged and they borrowed more,” said Roubini.
Roubini isn’t the only economic doomsday to warn of rough economic conditions next year.
Last month, hedge fund manager Michael Berry, who made famous in the 2015 movie “The Big Short,” said a “multi-year recession” was not averted because the Fed was not well-positioned to handle the situation. Q.
Roubini responded to Berry by saying that he, too, predicted a “long and hard recession.”