Economist Nouriel Rubini, who won the nickname Doom for the 2008 global financial meltdown, has relied on the Federal Reserve to warn traders for a quick resolution against financial market instability caused by President Donald Trump’s international trade tariffs.
A week ago, Trump announced swept tariffs on many countries, including large collections of Chinese imports, which are now raised to 104%. Financial markets are based on concerns that the move will drag the US and other economies into the recession.
The NASDAQ 100 lost 12%, while Bitcoin (BTC), the largest cryptocurrency by market value, fell 10%, surpassing a price that was below $75,000 at one point. U.S. Treasury volatility exploded, leading to a surge in long-term bond yields, and prices fell even if the stock market was disappointed. It sparked the fear of a full-scale dollar liquidity crisis, as observed during the Covid collision five years ago.
Speculation, like in 2020, will soon take action to ease liquidity conditions and place floors under asset prices. Traders have sold at least five-fifths of interest rate reductions this year from Federal Reserve Chairman Jerome Powell, according to CME’s FedWatch tool. Rubini suggests that it won’t happen.
“Of course, there’s a chicken chicken game between Trump Put and Powell Put. But I think the strike price for Powell Put will be lower than the strike price for Trump. So Powell is going to wait until Trump blinks.
In other words, Powell will probably wait for Trump to step in to stabilize market volatility before he can ease rhetoric. This approach makes sense given that current market instability is primarily the result of Trump’s tariffs.
The sentiment could soon be reversed when a single social media post from Trump announced the possibility of a trade deal or negotiation with China. The episode earlier this week is symptomatic. On Monday, unconfirmed reports of a suspension of tariffs caused a sharp surge in market valuations, but later the news began to be exposed as false.
Sticky inflation, no recession
Roubini, who runs Roubini Macro Associates, expects inflation to be sticky in a new world of higher tariffs, hurting long-term bonds. This partially explains the 10 and 30 years of US Treasury bills and the resulting surge in yields.
At the same time, he said he hopes the US will avoid falling into a recession, contrary to the pricing of market eralists and betting platforms, which suggests a 50% or more chance of an economy facing consecutive quarterly contractions in growth rates.
