Roubini Macro Associates CEO Nouriel Roubini Talks Fed
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Bloomberg Audio Studios. Podcasts, radio, news. What an honor to have with us Noel Rubini. Professor, he's not emeritus. You travel like he does. He's such a young kid. I don't know how emeritus-y he is. At New York University, of course, Chairman Rubini at Global Economics. One of the great moments for me was with Professor Rubini in Davos a million years ago where he simply outlined 2007, 2008, and 2009 to come.

Norrell, I don't care. The reason you're here is I'm looking May 31st, Munich. I mean, a hitter like you, you got to be looking the private skybox on StubHub Inter Milan versus PSG for $29,000. You got two seats in the private skybox. Are you going to roll that?

i'll watch it on tv it's very exciting he's a die hard from his youth in the old world an interfan i want to go back this is really serious folks and it's off the radar right now it shouldn't be brad setzer who you started has been on fire you and brad setzer wrote a book

11 years ago, whatever, Fred Bergsten wrote the wonderful introduction on EM. How does EM affect it? When I see Taiwan dollar go out five standard deviations, whatever, how is emerging a market off the radar affected by China, U.S., U.S., Canada, U.S., EU? What happens to your EM? Well, the good news for EM is that this time around,

the trade shock have not led to a strengthening of the dollar, but rather a weakening of the dollar. And where the dollar weakens, EM currencies tend to appreciate. It's also true that some of these Asian nations are sitting on trillions of dollars of U.S. treasuries, because their foreign reserves are very high. And there's been some diversification, because we've dented

I have to say the dollar is a major global reserve currency given our unstable policies. So these people move out of US Treasury and sell them and then go back to their own local currency. There has been some appreciation and that has taken some momentum.

There's also hope in Asia, I think, that there will be trade deals and the announced reciprocal tariffs are going to be much smaller than announced on April 2nd. That's also strengthening some of these currencies because some of them were weakening because of the risk of a trade war and so on. So I think there's a variety of factors leading to that happening. How concerned are you, if at all, about the U.S. economy in the face of the uncertainty

of all this trade discussion, the back and forth, the back and forth. It seems like consumers might be pulling back. It seems like corporate executives are pulling back on guidance. They're not sure how it's going to impact their businesses. How do you think that's going to affect the US economy? Well, there are some headwinds coming from trade and its uncertainty, and there are some tailwinds coming from strong CapEx, especially AI driven and still good income growth creation and so on.

I would say that over the medium term, actually, I'm quite bullish about the US economy. I think that because of technology, US potential growth by the end of the decade could be 4%, an increase of 200 basis points. And even poor trade and migration policy can reduce growth only by 50 basis points. So the ratio within the good stuff, 200 basis points to the bad 50 is 4 to 1. So I think we'll be on the verge of a secular boom over the next few years.

So I'm quite optimistic. But then in the short term, we'll have probably a new recession by year end. There is an increase in... Well, you mentioned a medium term. You've got to be from Europe to mention a medium term. We don't do that in America. My basic conundrum, Noura Rabini, is we've got the short-term reality within an American political system, which you live with President Clinton...

out to the long-term view of whatever Trump economics is in maybe a more optimistic future. How do we get, as they would say up in Maine, Norah, you don't know this, up in Maine where Lisa collects black flies, they get from here to there. How do we get from short-term to long-term success?

The way we get to this is that this year there will be a massive slowdown of growth. As you point out, consumer and business confidence is down. Inflation is going to go to 4% by year end. That's going to be a significant hit on real disposal income. So by Q4, we're going to be in a near recession.

The good news is that the Fed is now credibly committed to fight inflation. They're not cutting rates, therefore inflation expectations are anchored. Therefore, once inflation is higher but growth is lower and you have a beginning of an increase in unemployment rate, the Fed is going to be able to cut rates. I think it's going to be a short and shallow recession, maybe a couple of quarters.

Q1, Q4 and Q1 of next year. And then we'll have a strong recovery because the tailwinds coming from technology are massive. The U.S. is leading in all the technologies of the future. Claims are out there on plan. Unit labor costs and productivity were elevated. That's what we'll talk about here. Unit labor costs jumped from a revised 2% up to 5.7%. I got a tariff regime of 3%. You arguably were one of the people that set up

coming off the Atlantic Charter, the global trade, the globalization mantra of a lower tariff regime. Even if we pop from 145% drama in China and we come back down to like a blended 13%, I don't get it. Isn't the gap from a 3% blended tariff up to a 10% or 13% blended tariff? Isn't that insurmountable?

Probably the blended is going to be more than 13 because my baseline is 10 to 15 percent for all the world and 60 percent for China. So the blended could be in the high teens. It's a bad world, but let's put it this way. Suppose that there is an average tariff, say, reciprocal on Europe of

10% as opposed to 20%. Big deal. The euro can go up and down 10% in a matter of months. So is it good? No. Is it terrible? Is it going to destroy the world? Probably not, because currency can move more than 10% in a matter of months. So, of course, it's a world that is fragmented. It's a world that is deglobalized. But if the average tariff were being, say, 10%, 15%, rather than only 3%, the impact on growth is going to be

uh how to say moderate I would say this will be moderate of course with China's different story with China at 60 we're going to decouple from China and the shock on their growth and the shock around inflation is going to be significant so I'm more worried about uh the fact we're not going to de-escalate with China to a certain extent with all of your political economics do you believe common sense will come to the rescue in Washington

Well, more than common sense, in December I said there'll be four guardrails against stupid policy like tariffs, market discipline, good economic advisors, Fed discipline, and thin majority in Congress. Guess what? When the stock market crashed, bond yields were higher, credit spreads are higher, they're always higher, they blinked.

And they started to deescalate. Two, in that game of chicken between Trump and Powell, Trump blinked because he knew he was going to fire Powell. There'll be a shock to the market. So he blinked, and therefore Fed independence was a binding constraint. Eventually, the Peter Navarro of the world were sidelines, and the Scott Besson of the world had the upper hand, good economic advisers.

the fact is it was boxing by four guardrails that's exactly what they said in december i got goosebumps because i got norah robini and richard porters back to back i mean talk it's an academic wonk fest here right now have you ever done a panel with peter navarro uh i've not done a panel i met him during the trump one administration in the white house a couple of times so

It's strange. He has a PhD in economics from Harvard. Did you teach Navarro economics at New York University? No, no. He was a PhD at Harvard. But we didn't overlap. Yeah, surprising. A PhD in economics from Harvard. But Steve Milan has also a PhD in economics from Harvard. So do I. I've got 20 seconds. How does Inter Milan beat PSG? What? How does Inter Milan beat PSG?

I don't know. You're going to be there. You spent $28,000. Noor Urbini, thank you, thank you. Hopefully, Inter is going to win. Lisa wants to know, when's the new book out? I don't have a new one. Megathreads came out two years ago. It's still going. And all the themes of the book, Megathreads, are still very important today. All the threads I talked about are materializing. Okay. So...

Norio, thank you so much. Greatly appreciate it. Norio Rubini. Hiscox Small Business Insurance knows there is no business like your business. Across America, over 600,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online quote at Hiscox.com. That's H-I-S-C-O-X dot com.

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