Roubini Warns 3.5% US Inflation by 2025, Fed Rate Cuts Delayed

Economist Nouriel Roubini has warned of a potential recession in the latter half of the year, predicting that core inflation in the United States will climb to 3.5% by the end of 2025. Roubini anticipates that the Federal Reserve will not cut interest rates until at least December, as inflation remains a significant concern. He described the economic slowdown as a "mini stagflationary shock," where growth decelerates while inflation stays elevated. This scenario, he noted, is reminiscent of past economic conditions where the Fed has been constrained by high inflation rates. The core personal consumption expenditures index, the Fed's preferred measure of inflation, is expected to remain above target levels, limiting the central bank's ability to pivot.

Roubini also commented on global trade dynamics, expecting trade talks to cool off, resulting in a "mild" outcome where many countries face 15% tariffs. This development, he warned, could lead to economic damage without fully avoiding it. Roubini, known for his accurate predictions of the 2008 financial crisis and the 2020 recession, has a reputation for his pessimistic economic outlook, earning him the nickname "Dr. Doom." Currently, he serves as a portfolio manager at the Atlas America Fund, an ETF designed to protect investors from inflation, economic shocks, and climate instability. Despite its small size, the fund has shown resilience, gaining over 5% since its launch in November. However, it has underperformed compared to the S&P 500.

The Atlas America Fund is structured to provide steady returns rather than chasing big wins. It includes a mix of gold, short-term U.S. government debt, and agricultural commodities. Recent adjustments to the portfolio have seen an increase in exposure to cybersecurity and defense technology, as well as short-term inflation-protected bonds, while reducing real estate holdings. Roubini believes that the global economy is gradually moving away from the U.S. dollar, and investors are preparing for this shift. He anticipates a future marked by elevated inflation, slower growth, geopolitical uncertainty, and tighter financial conditions worldwide.