The "Doomsday Doctor" Reverse Operation Manual: The Federal Reserve Will Not Cut Interest Rates, and the U.S. Stock Market Will Not Die

Nouriel Roubini, known as the "Dr. Doom," has issued a new warning to Wall Street: Traders should reduce their bets on the Federal Reserve increasing interest rate cuts to mitigate the impact of Trump's trade conflicts.

This time, the economist who gained fame for correctly predicting the 2008 financial crisis expects that after the tariff-related policy debates ease, the Federal Reserve will keep interest rates stable for the remainder of this year, and the U.S. economy will avoid recession.

Amid concerns that punitive tariffs will exacerbate a global economic downturn, the U.S. stock market wiped out over $5 trillion in market value within three trading days. Roubini predicts that despite Trump's recent support for using tariffs as a "medicine," he will be the first to yield to market pressure, while the Federal Reserve will stick to its mission of combating inflation. Roubini believes that, coupled with the relative resilience of the credit market amid recent global turmoil, the Federal Reserve has reason to maintain a cautious policy stance.

"Of course, there is a game of chicken between Trump's put options and Powell's put options, but what I want to say is that the trigger threshold for Powell's put options will be higher than Trump's put options, which means Powell will wait until Trump yields." Roubini said in a phone interview.

Federal Reserve Chairman Jerome Powell stated last week that the impact of new tariffs on the economy could far exceed expectations, leading to slower economic growth and rising inflation. This week, traders expect the Federal Reserve to cut interest rates three to five times, with some on Wall Street even believing that the Federal Reserve will make an emergency rate cut before the next meeting.

On Tuesday, hopes for trade negotiations remained. For bond traders, it was the craziest day since the peak of the pandemic in March 2020, with U.S. Treasury bonds falling while the U.S. stock market surged at the fastest pace since 2022, before pulling back. The so-called fear index VIX on Wall Street soared above 60 and is currently around 55. Investors have been concerned that something might collapse amid all the volatility.

Roubini's optimistic view of the economic outlook sharply contrasts with other market observers, with former Treasury Secretary Lawrence Summers predicting a recession that could lead to 2 million Americans losing their jobs, and some economists on Wall Street sharing the same pessimistic outlook. Even if trade negotiations offer hope for the U.S. to ease its protectionist stance, they warn that a new world of higher tariffs is beckoning.

For Roubini, this means inflation will persist, thereby harming investors' interest in longer-term bonds. This provides a constructive backdrop for his investments in inflation-protected U.S. Treasury bonds, municipal securities, and gold trusts, among others, through exchange-traded funds (ETFs).

The actively managed Atlas America Fund (USAF) has accumulated only $16 million in assets since its inception. So far this year, the ETF has risen nearly 1%, outperforming the S&P 500 index, which has been teetering on the brink of a bear market for the first time since 2022, as well as Bloomberg's 60/40 index