Nouriel Roubini, the economist who predicted the 2008 world financial collapse to earn the nickname of Dr. Doom, warned merchants who would not trust the Federal Reserve for a rapid resolution of the instability of the financial market caused by the tariffs of President Donald Trump about international trade.
A week ago, Trump announced radical tariffs against many nations, including a strong Chinese import tax that has now risen to 104%. The financial markets became concerns of the measure, will drag the US and other economies to the recession.
The Nasdaq 100 has lost 12% and Bitcoin (BTC), the largest cryptocurrency for market value, fell 10%, reaching prices below $ 75,000 at one point. The volatility in the United States Treasury market exploded, with yields of the largest date bonds, which increases the lowest prices even when the capital markets fainted. That has generated fears of a full -fledged liquidity crisis such as that observed five years ago during the Covid Choque.
It is an abundant speculation, the Federal Reserve will soon take measures to relieve liquidity conditions, as it did in 2020, placing an apartment under assets prices. The merchants have valued at least five point cuts of point interest rate of the president of the FED, Jerome Powell, for this year, according to the Fedwatch tool of CME. Roubini suggests that this will not happen.
“There is, of course, a chicken game between Trump’s put and Powell. But I would say the exercise price for Powell Put will be lower than the exercise price for Trump’s put, which means that Powell will wait until Trump is the one who flicker,” Roubini told Bloomberg.
In other words, Powell will probably wait for Trump to modify his rhetoric before intervening to stabilize market volatility. This approach makes sense since the current market instability is largely the result of Trump’s rates.
The feeling could quickly reverse with a Trump unique media post that announces a possible commercial agreement or negotiation with China. An episode at the beginning of this week is symptomatic. On Monday, an unconfirmed report from a rate pause caused a strong increase in market assessments, just for the news to be discredited as false.
Swearing inflation, without recession
Roubini, who runs Roubini Macro Associates, expects inflation to be sticky in a new world of higher rates, harming the bonds with a longer date. That partly explains the fainting in the United States Treasury notes of 10 and 30 years and the resulting increase in yields.
At the same time, he said that the United States avoids falling into a recession, unlike the spirit of the market and prices on betting platforms, which suggests a probability of more than 50% that the economy in front of consecutive quarterly contractions in the growth rate.
