- Stocks and bonds are in for more severe losses for years to come, according to Nouriel Roubini.
- That’s because inflation will stay closer to 6%, spelling big losses for traditional assets.
- The economist has warned of a stagflationary debt crisis in which stocks suffer amid a major recession.
High inflation is here to stay, and that means stocks and bonds will endure more pain for years to come, according to “Dr. Doom” economist Nouriel Roubini.
Roubini, who was among commentators who accurately predicted the 2008 crisis, warned investors that inflation could hover close to 6% despite the Fed’s scramble to bring down high prices. Over the last year, central bankers have raised interest rates 450 basis-points to tame high inflation, a move that’s weighed heavily on stock and bonds.
The S&P 500 lost 20% in 2022 and bond prices have sunk amid tighter financial conditions, and the investment environment could worsen as long as inflation remains high, Roubini warned.
“If I’m right, then the average inflation rate is not going to be 2%, it’s going to be 6%. And the losses we saw last year in bonds and equities, it’s going to be more severe in the years to come,” the top economist said in an interview with CNN on Thursday.
Consumer Price Index data clocked in at 6.4% in January, down from a 41-year-record notched last summer, but well above the Fed’s 2% inflation target. Officials have warned more rate hikes are necessary to lower prices, though experts say higher rates could push the economy into a recession.
Roubini, who is known for his grim predictions for markets and the economy, has warned of a stagflationary debt crisis, which combines the worst aspects of 70s-style stagflation and the 2008 financial crisis. That’s because central bankers will be torn between raising interest rates to fight inflation, and lowering interest rates to alleviate debt burdens, he warned. That could cause prices to spiral out of control and wipe hit the economy with a major recession.
In that scenario, stocks could crash as much as 30%, Roubini said, in line with bearish forecasts from other Wall Street commentators. Morgan Stanley has warned that stocks have entered the “death zone” and could see a 26% crash in the coming months as inflation continues to ravage the market.
Roubini urged investors to move away from “traditional” investments like bonds and equities, and to instead invest in inflation hedges, including short-term bonds, inflation indexed bonds, commodities, and precious metals such as gold.