Severe negative growth in the first half of the year might be a precursor of a far worse crisis that could persist until 2024. Stephen Roach, former chair of Morgan Stanley Asia, says that the U.S. needs a "miracle" to escape a recession.
Roach, a Yale University senior scholar and U.S. Federal Reserve economist, believes Fed Chair Jerome Powell has no option except to tighten in the manner of Paul Volcker. Volcker aggressively raised interest rates in the early 1980s to manage massive inflation.
Following the Fed's aggressive interest rate hikes, the unemployment rate remains at 3.5%. It corresponds to the lowest level since 1969. This might change when the Bureau of Labor Statistics issues its August data on Friday. Roach thinks that the rate will soon begin to rise.
"We'll have a cumulative drop in the economy [GDP] of around 1.5% to 2%." And the unemployment rate will have to rise by 1 to 2 percentage points at the very least," Roach added. "That would be a typical recession."
He predicts that the world economy will likewise enter a slump. He is skeptical of China's economic activity, given the country's zero-Covid policy, severe supply chain backlogs, and conflicts with the West.
"We've gone from a trade war to a tech war to a cold war in the last five years," Roach explained. "When you're on this path of developing conflict, it doesn't take much of a spark to convert it into something considerably more serious."