“Even in a plain vanilla recession, the S&P 500 can fall by 30 per cent,” said Roubini, chairman and chief executive officer of Roubini Macro Associates, in an interview Monday. In “a real hard landing,” which he expects, it could fall 40 per cent.By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc.
Achieving a two per cent inflation without a hard landing is going to be a “mission impossible” for the Federal Reserve. Roubini expects a 75 basis points rate hike at the current meeting and 50 basis points in both November and December. That would lead the Fed funds rate by year’s end to be between four per cent and 4.25 per cent.Article content
However persistent inflation, especially in wages and the service sector, will mean the Fed will “probably have no choice” but to hike more, he said, with funds rates going toward five per cent. On top of that, negative supply shocks coming from the pandemic, Russia-Ukraine conflict and China’s zero Covid tolerance policy will bring higher costs and lower economic growth.
Once the world is in recession, Roubini doesn’t expect fiscal stimulus remedies as governments with too much debt are “running out of fiscal bullets.” High inflation would also mean that “if you do fiscal stimulus, you’re overheating the aggregate demand.”Article content
So hoard cash and wait for the bargains if you believe him.