Renowned economist Nouriel Roubini issues a warning as the Fed tries to curb soaring inflation

The US economy could sink into a quagmire of shrinking output, surging inflation and soaring unemployment, renowned economist and New York University professor Nouriel Roubini warned last week during an eToro webinar.

He argued that the Federal Reserve might have to double interest rates to 5% in order to curb inflation. However, such an increase could choke economic growth and cause a spike in joblessness, Roubini stressed. Moreover, raising rates could trigger a debt crisis.

The economist also cautioned that the US regulator’s moves to rein in inflation could tank the economy, and cause crashes across stocks, bonds, housing, credit, private equity, and other assets in bubble territory. However, if the central bank gives up on fighting inflation, price increases could spiral out of control.

Stubborn inflation and the coronavirus pandemic might force the Fed to drive the US economy into an even deeper recession than the one it has avoided, Roubini warned.

“I worry about a stagflationary debt crisis, because you have the worst of the '70s in terms of supply shocks, and you have the worst of the global financial crisis because of too much debt, and that combination is dangerous,” he said.

“If you're behind the curve, eventually the recession is going to be more severe, the loss of jobs and income and wages is going to be more severe,” the economist explained, referring to the Fed's rate hikes relative to inflation. “You need to be ahead of the curve.”

Roubini came to prominence for predicting the financial crisis of 2008-09 and was dubbed ‘Doctor Doom’ by Wall Street.

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