Nouriel Roubini Talks Fed Policy

**SPEAKER_1** (0:02)
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**SPEAKER_2** (0:07)
US firms racing for cash to fund the AI buildout. Big tech spending on artificial intelligence expected to surpass 700 billion for the year from just a handful of companies. Nouriel Roubini of Roubini Macro Associates writing, on this trajectory, US exceptionalism strengthens rather than fades. Equity valuations need not rest on bubble dynamics and should deliver solid returns by episodic volatility. Nouriel joins us now for more. Nouriel, good morning.

**Nouriel Roubini** (0:32)
Good morning.

**SPEAKER_2** (0:33)
A really beautiful moment with Senator Dave McCormick leaving the studio. You come again and he said, you're no longer Dr. Doom anymore, you're Dr. Boom. What's changed?

**Nouriel Roubini** (0:40)
What changed has been essentially the most important technological innovation in human history.
While everyone is talking about AI and GenAI, this is only one of the 12 or more industries of the future. You have AI, you have semiconductors, you have robotic automation and humanoid robots. You have fusion energy, you have quantum, you have defense tech, you have space exploration, fintech, actech, you have new material science, new cryptography, really is a Cambrian explosion of innovations. Each one of them, I have to say, powered by AI, but they're separate verticals, very separate indices, space exploration, exploitation is separate from AI, even if it's fed by AI. So I'm going to see US potential growth for the last two decades has been barely 2 percent. I expected that by the end of these decades, it's going to be at least 4 percent. And the data already suggests that productivity since COVID has doubled, in spite of COVID, it's already closer to 2 percent plus. And with potential growth higher, there will be a significant increase also in equity market returns.

**SPEAKER_4** (1:41)
How concerned are you about bumps along the way? Christine Lagarde talking about the financial risk that comes along with the likes of mythos or some of the technological advancements that could potentially torpedo the financial system, the payment system as we know it. I mean, how much is that potentially a risk on the way to this much more prosperous future?

**Nouriel Roubini** (1:58)
Well, there are two types of risks. I wrote a book in 2022 about megathreats, where I spoke about inflationary risk, things that reduce growth and increase inflation, while technology does the opposite, increases growth, reduces inflation. Of course, having tariffs, having restriction to migration, having large budget deficits, playing with the independence of the Fed, rule of law, you name it, all those things can be actually reducing growth and increasing inflation. And there are risks coming from AI, existential risk or risk of having financial or types of instability.
I've said since April of last year that tech trumps tariffs, because the impact on growth of tech is 200 basis points, my view, going from 2% to 4%.
And if you add in a realistic scenario where market discipline constrains bad policies, because it did constrain them, then the downside from bad policies is at best 50 basis points. So the ratio of 200 to 50, 4 to 1 So tech, Trump's tariff, and I said also tech, Trump's temper tantrums too, because all those things are constrained again by market discipline. Every time he's in Talo mode, lashes out, then the market punishes him and he goes back to chickening out. It happened after April 2nd, it happened after Greenland, it happened after the war with Iran. So market discipline is a very powerful force to constrain bad policies.

**SPEAKER_4** (3:13)
Do you think it's appropriate for the Fed to hike once or even twice?

**Nouriel Roubini** (3:17)
It's possible. I would say the economy is going to strengthen.
Inflation probably is going to slow down because now oil prices are not 100, they're close to 80 And therefore food prices, fertilizer, things are going to gradually fall even if there'll be bottlenecks. So it's kind of like a close call. But I would say it doesn't really matter very much because the economy is powered by AI and technology and these massive tailwinds. And they don't depend very much on policy rates. If policy rates are 50 basis points higher or lower, I don't think the tech boom is going to really matter very much. And we already saw during the war we ran, that when oil was at 100, the stock market reached all-time highs, in spite of that, in spite of worries about what the Fed does. So I would say people obsessed with the Fed, whether it's 50 basis points higher, whether it's right now. What's the difference? The key story is tech boom. And that's going to be the most important first-order impact of anything else.