Bloomberg reports that Nouriel Roubini said the Fed may find it tough to tighten policy if growth slows and markets sell off like they did in the fourth quarter of 2018.
“They are going to wimp out,” the chairman and chief executive officer of Roubini Macro Associates, said. “They are going to postpone any finishing of tapering or raising rates.”
Stagflation is set to persist “for several quarters,” he said. The U.S. core personal consumption expenditures price gauge will stay above 3% next year, he said.
Supply chain bottlenecks and labor shortages are fueling a significant increase in core and headline inflation and at the same time hurting economic growth, Roubini said.
“It becomes a very tough dilemma for central banks,” he said. If growth slows, the Fed will “end up being dovish.”
If the Fed is dovish and inflation becomes volatile, U.S. bond yields are set to climb further as investors price in a higher inflationary risk premium, Roubini said.