Negative economic growth in the first half of this year points to a deep recession that could continue into 2024.
Stephen Roach, former head of Asia at Morgan Stanley, warned that a “miracle” would be needed if the United States was to avoid a recession.
“The long-term effects of this massive monetary tightening will undoubtedly lead to a recession,” Roach told CNBC’s Fast Money program. “They don’t start everything”.
Roach, a Yale researcher, and former Fed economist said Federal Reserve Chairman Jerome Powell had no choice but to implement a Paul Volcker approach to policy tightening. In the early 1980s, Volcker raised interest rates sharply to curb inflation.
The suffering Paul Volcker had to inflict on the US economy to stop inflation is referenced. He had to accept double-digit unemployment,” Roach said. Focus on discipline, keep the real fed funds rate in the covered zone, and the no-go zone is a long way from where we are now.
The unemployment rate is 3.5% despite the sharp hike in interest rates by the Federal Reserve. This is the lowest level since 1969. That could change on Friday when the Bureau of Labor Statistics releases its August report. Interest rates will certainly start to rise, predicts Roach.
It won’t happen, and the Fed’s massive monetary tightening indicates how much more has to be done. It needs to go up, but hopefully, it’s not that high, but it could go up at 6%
A client can be an endpoint that cannot be returned. Roach suggests that sustainable inflation will soon collapse. If that happens, he predicts, spending cuts will spread throughout the economy and cause problems in the labor market.
Unemployment is expected to increase by at least 1-2%,” Roach said. “It’s the collapse of horticultural diversity”.
Cold War with China
The prognosis abroad is not very good.
The global economy is also expected to enter a recession. Citing Covid-19 policies, delays in major supply chains, and tensions with the West, he believes China’s economic activity will soften the impact.
Roach is particularly concerned about US-China relations, as he wrote in November in his new book, Accidental Conflict: America, China, and the Clash of False Narratives.
We went from trade conflicts to technological battles to the Cold War in the last five years, according to Roach. When a dispute is progressing in a negative direction, like ours is, it doesn’t take much to escalate it.
Worst: Economist Stephen Roach says the U.S. should be “incapacitated” for a recession.
Stephen Roach, former head of Morgan Stanley, warned that the Fed’s tightening policy had not yet begun.
Fed Chairman Jerome Powell did not take a hard line on the approach, said Roach, a former Yale University economist, and former Fed economist. In the early 1980s, Volcker raised interest rates rapidly to curb inflation.
Let’s go back to the pain caused by the bridge. Roach predicted that the unemployment rate will surpass 10%.