US needs a ‘miracle’ to avoid recession – Stephen Roach
The negative economic growth that occurred in the United States in the first half of this year is expected to continue, according to economist Stephen Roach.
The longtime head of Morgan Stanley Asia told CNBC on Tuesday that a much deeper economic downturn could last until 2024, noting that the US needed a “miracle” to avoid a recession.
“We’ll definitely have a recession as the lagged impacts of this major monetary tightening start to kick in,” Roach warned, adding, “They haven’t kicked in at all right now.”
A former Federal Reserve economist, Roach suggested that Fed Chair Jerome Powell had no choice but to take a Paul Volcker approach to tightening.
“Go back to the type of pain Paul Volcker had to impose on the US economy to ring out inflation. He had to take the unemployment rate above 10%,” Roach explained. “The only way we’re not going to get there is if the Fed under Jerome Powell sticks to his word, stays focused on discipline, and gets that real Federal funds rate into the restrictive zone. And, the restrictive zone is a long way away from where we are right now.”
According to the economist, the US unemployment rate, which currently stands at 3.5%, will start climbing soon. “The fact that it hasn’t happened and the Fed has done a significant monetary tightening to date shows you how much work they have to do,” he noted. “The unemployment rate is going to have to go up by one to two percentage points in a minimum. That would be a garden variety recession.”
Roach also predicted the United States would experience “a cumulative drop in the economy [GDP] somewhere of around 1.5% to 2%.”
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