Roubini sees ‘long and ugly’ inflation-linked crash

  • According to Cathie Wood, Nouriel Roubini’s view that inflation will cause a “long and ugly” recession is wrong.
  • “Roubini and others who forecast intractable 1970s-style inflation will be blindsided by outright deflation,” Wood said.
  • While the two might disagree on inflation versus deflation, they agree that the economy will go into recession.

Nouriel Roubini is sounding the alarm that an inflation-fueled recession is about to hit the US economy in a big way, according to an interview with Bloomberg.

“It’s not going to be a short, shallow recession, it’s going to be deep, long, and ugly,” said self-styled economist Dr. Doom, adding that the stock market could crash 40% if it lands. harsh economy. .

Roubini ultimately expects the Federal Reserve to be forced to continue its aggressive interest rate hikes and raise the federal funds rate to at least 5% due to persistently high inflation.

But Cathie Wood disagrees with Roubini on at least part of her assessment, as she continues to stick to the thesis that deflation is about to take hold in the United States.

“In our view, Roubini predicting intractable 1970s-style inflation will be blindsided by outright deflation,” the CEO of ARK Invest said in a tweet from tuesday.

She argued that headline inflation is already easing on a sequential basis thanks to tighter monetary and fiscal policies, and that some commodity prices have come down significantly from recent highs.

Some deflation would be welcomed by stock investors, as it would mark the end of the recent period of high inflation and give the Fed more flexibility in its interest rate path. But too much deflation could be a bad thing, as it can signal demand destruction.

At this point, Wood noted recent gasoline demand data as reason to believe deflation is imminent.

“The demand for gasoline in the United States has fallen below the level reached during the depths of the coronavirus in 2020 to levels last seen 25 years ago in 1997, even though the number of cars on the road – most gas-powered – is much higher than 25 years ago,” she said.

In fact, total vehicle miles traveled in the United States fell 3% in July from a year earlier.

The decline in gasoline demand came after the average price of a gallon of gasoline jumped above $5 in the United States. Wood attributes this to the fact that consumers have the ability to resist high prices and reduce their spending habits in response. Since hitting highs in June, gasoline prices have fallen sharply.

But whether it’s inflation or deflation, one thing Roubini and Wood can agree on is that the United States will enter an economic recession, if it hasn’t already.

“What we’re seeing in these results is that we’re in a recession… We think it’s an inventory-driven recession, and I think that’s coming through loud and clear. We’re seeing advertisers drastically reduce,” Wood said in August.

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