The longtime head of Morgan Stanley Asia, Stephen Roach, 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.
Roach said the negative growth that has already plagued the first half of this year is expected to worsen.
“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.” As former Federal Reserve economist, Roach suggested that Federal Reserve 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 according to a report by RT. “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.”
Roach also predicted the United States would experience “a cumulative drop in the economy [GDP] somewhere of around 1.5% to 2%.” Roach also said that there should be an expectation the unemployment rate will rise 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 at a minimum. That would be a garden variety recession.”
Inflation and recession fears are crippling an already destroyed economy. Consumers are paying much more for essential goods such as food than they ever have and prices are only going higher. A majority of U.S. economists say the country is headed for a dramatic recession by 2023, while 20% say it is already in recession.