Nouriel Roubini says a return to 2% inflation is ‘mission impossible’

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‘Both on the supply side and the demand side, there are factors implying that 2% [inflation] is, at this point, mission impossible.’ 

— Nouriel Roubini, CEO of Roubini Macro Associates

Nouriel Roubini, a high-profile economist and the chief executive officer of Roubini Macro Associates, says the world’s advanced economies, such as the U.S., the U.K. and France, won’t return to 2% inflation in the near term.

“Structural changes” to the global economy imply that inflation will be much higher for the longer term, Roubini said in a Monday interview on Bloomberg Television. 

Some supply-side factors — such as geopolitical conflict, aging populations, immigration restrictions and the pandemic — will weigh on economic growth and increase the cost of production. Meanwhile, on the demand side, spending will be higher as people “will have to spend more against inequality, against climate change, to deal with the pandemic, to deal with inequality coming from globalization and artificial intelligence,” he said.  

“The era of the great moderation of low inflation below 2% and stable growth is gone,” Roubini said. “The new normal may be somewhere between 3% and 4% for advanced economies over time — of course not overnight.” 

Roubini is known to many as “Dr. Doom” for his often bearish pronouncements. He rose to prominence with a particularly downbeat call in the years before the 2008 financial crisis, when he predicted a “nightmare hard-landing scenario” and rang the alarm for the collapse of the U.S. housing market. 

In a column published by MarketWatch in late June, Roubini said a short and shallow economic contraction over the next year has become much more likely. He also said that if central banks’ efforts to tame inflation trigger severe economic and financial instability, policy makers around the world may wimp out and decide to allow for above-target inflation, risking a de-anchoring of inflation expectations and a persistent wage-price spiral.

See: U.S. economy is trending in the Fed’s direction, so expect Powell to tread carefully this week

U.S. stocks finished modestly higher on Monday to start the week as investors look toward the Federal Reserve’s September policy meeting, which starts tomorrow. Traders were pricing in a 99% chance that the Federal Reserve stays put when it releases its interest-rate decision on Wednesday afternoon, according to the CME FedWatch tool. 

The S&P 500
finished nearly 0.1% higher, while the Dow Jones Industrial Average
and the Nasdaq Composite
ended nearly flat, according to FactSet data.

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