Tom Williams/Getty Images
- Nouriel Roubini said Tuesday the Fed may interrupt its tapering process if economic growth is quickly slowing and markets sink.
- The NYU professor told Bloomberg the Fed may begin reducing asset purchases in November.
- The Fed is likely keeping 2018 in mind when stocks stumbled on growth and rate-hike worries.
The Federal Reserve may begin tapering asset purchases in November, but could hit pause if economic growth slows and investors respond with a sharp selloff in markets as they did in 2018, economist Nouriel Roubini said in an interview with Bloomberg on Tuesday.
The US central bank has suggested it will soon start reducing monthly purchases of $120 billion in Treasury bonds and mortgage-backed securities as it winds down stimulus measures put in place as the COVID crisis unfolded in 2020.
The Fed could kick off so-called tapering next month, said Roubini, who is known for calling the housing-market crash of 2007.
However, "if they start tapering and you have a shock like in the fourth quarter of '18 when you have bond yields going higher, credit spreads going higher, the stock market correcting sharply, and the economy is slowing down very sharply, I don't think they'll be able to be tough on inflation," said the NYU professor whose pessimistic market views earning him the nickname "Dr. Doom."
"They're gonna wimp out, and they're gonna dodge it, and they're gonna postpone any finishing of tapering or raising rates," he added.
US stocks in 2018 posted their worst performance in ten years, with the S&P 500 tumbling by 6.2%. Stocks veered lower in the fourth quarter on fears that growth prospects would be damaged in part by a trade dispute between the US and China. Meanwhile, the Federal Reserve in December increased interest rates for a fourth time that year and suggested it would continue rate hikes in 2019, spooking investors who were nervous about the quick pace of monetary tightening.
Federal Reserve Chairman Jerome Powell said last month the tapering process could move quickly if the US economic recovery holds strong. As of last month, nine of the 18 members on the Fed's interest-rate committee expected to begin raising interest rates in 2022, up from seven members this summer.
"So they're talking the right way. But in a situation where growth is slowing down and you could have a tightening of financial conditions, I don't think that the Fed is going to be hawkish. I think they're going to end up being dovish," said Roubini.
The International Monetary Fund on Tuesday reduced its 2021 global growth forecast to 5.9% from 6%, saying advanced economies are still wrestling with supply-chain bottlenecks.