Nouriel Roubini, the renowned economist who earned the nickname “Dr Doom” for his prescient predictions of the global financial crisis, has issued a new warning: A Trump White House would increase the risk of a stagflation shock.
"The risk of stagflation from Trump's trade, foreign exchange, monetary, fiscal, immigration and foreign policy mix is much higher than if Harris were elected," Roubini said Wednesday at the Greenwich Economic Forum in Connecticut. He believes Trump's policy plans - including higher tariffs, a weaker dollar and a tough stance on illegal immigration - have the potential to slow the economy while spurring higher inflation.
Roubini also pointed to tensions in the Middle East as a potential catalyst. He said further escalation could cause oil prices to spike, adding to price pressures.
Last week, Brent crude traded above $81 a barrel as tensions between Israel and Iran flared again. Prices have since retreated and are hovering around $75 a barrel due to supply issues. Higher oil prices hurt businesses and consumers.
Domestically, Trump's hard-line immigration tactics, such as his vow to mandate mass deportations, pose another risk because immigration boosts the economy, Roubini said.
To hedge against these risks, Roubini recommends investors hold gold, short-term bonds and Treasury inflation-protected securities (TIPs).
To be sure, Roubini’s previous predictions have not all come true. In 2022, he made a similar prediction of a stagflationary debt crisis, which has not yet materialized.
Roubini has long been skeptical of rising stock prices, though he is less bearish when it comes to U.S. tech giants.
“The big tech story makes sense to me because AI is going to revolutionize the world, starting in the U.S.,” he said. “But it’s not going to happen overnight.”
The economist expects AI to boost U.S. productivity growth by more than 3% by the end of the decade, but added that such optimism is already priced into stock prices.
“Investing in things related to technology and artificial intelligence is a good long-term investment, but there is a lot of volatility due to inflation, interest rates and possible changes in the economy. Tech is a long-term investment,” he said.
He believes that so far, traders have largely shied away from the risk of a second Trump presidency for three reasons: the tight race with Harris; the prospect that the Trump administration will temper its proposals with a more moderate approach; and the possibility of a market sell-off that would prevent him from enacting certain policies.
Article forwarded from: Jinshi Data