Renowned economist Nouriel Roubini, known as the "Dr. Doomsday" who accurately predicted the 2008 financial tsunami, said on Monday that he is currently most concerned about the overheating of the US economy. That is to say, the economy may not slow down at all. This viewpoint is unique among many Wall Street giants.
He said that although there are many claims about a so-called "soft landing", he believes that the economy may not land at all, and in the absence of a landing, economic growth will continue to accelerate. In this situation, this may shake the stock market.
Roubini said in the latest interview, "Earlier this year, the market was expected to cut interest rates six to eight times. Now they have agreed with what the Federal Reserve told us, only three times."
"However, if due to technology and other factors, economic growth far exceeds potential levels. As a result, the Federal Reserve did not cut interest rates three times - only twice, once, and some people say zero, what should we do?" he added.
As Roubini said, in recent months, the market's expectations for interest rate cuts have become more conservative. According to the CME Federal Reserve Watch tool, traders now expect a higher probability of a 75 basis point rate cut this year, which is half of what they expected in mid December 2023.
The debate about the next steps of the Federal Reserve and the direction of the economy highlights the uncertainty in the current financial markets. Taking history as a lesson, Roubini believes that the above results (i.e. no economic slowdown, failure of the Federal Reserve to cut interest rates as expected) will bring serious downside risks to the market.
According to him, last year when the Federal Reserve made tough revisions to interest rate expectations in August and September, the US stock market experienced a 10% correction.
"This is a potential paradox, good news for economic growth may be bad news for the market because it means that the Federal Reserve will not cut interest rates as much as people now expect, or not as quickly," he added.