- Banks are in a dangerous spot and a recession is foretold, according to Nouriel Roubini.
- The Fed is torn between cutting rates to ease volatility and raising rates to fight inflation, he said.
The US banking system is in a dangerous position, and the Fed can't win no matter what it does with interest rates, according to "Dr. Doom" economist Nouriel Roubini.
Roubini, who predicted the 2008 recession and is known for his gloom-and-doom prognostications on Wall Street, warned of trouble stemming from the recent $4, which has sparked fears of a banking crisis.
"It's an extremely dangerous moment, because there's now significant stress in some parts of the US banking system at a time when inflation is still too high," the top economist said in an interview with $4 on Friday.
That leaves central bankers in a lose-lose situation, he said, as the Fed is torn between fighting inflation, which it does by raising interest rates, or lowering financial volatility, which it can do by easing rates.
Raising rates higher could spark more instability by shaking the banking system, but lowering rates in response to the turmoil could cause inflation to spiral out of hand again, leading to a stagflationary crisis, he warned.
"In some sense, the central banks now are damned if they do, damned if they don't," Roubini said.
That dilemma, combined with mounting debt levels, makes the US bound for a recession, he added. Known as a "$4" on Wall Street, he has been warning for months of a downturn and a stagflationary-debt crisis, and previously predicted that $4 as the US battles high inflation, sluggish growth, and debt problems that rival the 2008 crisis.
"I think whatever they do, they're going to end up in trouble. Because at this point, it's too late to find a solution that prevents a hard landing and prevents severe financial stresses," he added.
That echoes the view of other commentators, who say a $4 and more stock market pain are foretold. DataTrek co-founder Nicholas Colas told Insider he expected a downturn over the next year, and "Bond King" Jeff Gundlach said he saw a $4, pointing to a $4.
Markets are expecting the Fed to issue another 25-basis-point rate hike at their next policy meeting this week, before pausing monetary tightening efforts and $4 later in the year.
Central bankers have already raised interest rates 450 basis points over the last year to fight inflation, a move that $4 and is partly responsible for the $4 and other $4, experts say.