'From Iran War To Bond Yields': 'Dr. Doom' Nouriel Roubini Flags 4 Risks Looming Over US Economy

(MENAFN- Live Mint) Economist Nouriel Roubini, known as "Dr. Doom" for his often bearish market calls, remains broadly optimistic about the investment landscape but sees several risks looming over the US economy.

Speaking to Bloomberg, Roubini, who gained prominence after predicting the 2008 financial crisis, pointed to the continuing Iran war, higher bond yields and the possibility of a market correction among his key concerns.

At the same time, he remains positive about the artificial intelligence (AI) boom, citing the billions being spent by technology companies on AI infrastructure and the potential productivity gains that could follow.

Here are the four risks Roubini highlighted:1. Strait of Hormuz remains closed

Roubini pointed to continued disruption to oil flows through the Persian Gulf as a major risk for markets.

The issue has weighed on markets since the start of the Iran war, sending oil prices sharply higher earlier this year. Although crude prices have eased from their wartime peak, Roubini warned that they could rise again if the conflict continues and oil reserves decline.

Higher oil prices have also weighed on risk assets such as stocks, reflecting concerns over their potential impact on inflation and economic growth.

Brent crude, the international benchmark, rose 6% this week as the US and Iran launched fresh strikes. Meanwhile, stocks of crude in the US Strategic Petroleum Reserve reached a 43-year low last month, according to the latest data from the Energy Information Administration.

Also Read | US economy adds 162,000 jobs in August as unemployment holds at 4.1% 2. Iran war could escalate after US midterm elections

Roubini also sees a risk that the Iran conflict could intensify after the US midterm elections this year.

He suggested that concerns about President Donald Trump's presidential legacy could influence the administration's approach to the conflict and potentially lead to greater military pressure on Iran.

“If they lose the House and he's going to start bombing Iran and try to win the war - that's always a risk,” Roubini said.

3. Bond yields could rise further

Growing concerns over government deficits and the need for what Roubini called“fiscal consolidation” could push bond yields higher, he said.

“If that doesn't happen, then bond yields can go higher and that could put pressure and crowd out some of the domestic demand,” Roubini said.

The US bond market has faced pressure amid concerns that the country's budget deficit could reach unsustainable levels and that inflation could remain elevated over the longer term.

Higher yields can also reflect investors demanding greater returns to hold government debt, while expectations around interest rates and inflation can influence the direction of bond yields.

Also Read | Trump's Iran war could last another six months, ex-US defense secretary warns 4. Markets could face a correction

Despite his positive assessment of the investment environment, Roubini warned that markets could experience a correction.

“Some corrections could occur,” he said, while adding that he does not believe the current AI rally represents a market bubble.

“The downside risks are the usual suspects, but we are in the middle of a real global investment boom,” Roubini said.

Other forecasters have also raised concerns about a possible correction as bond yields remain elevated and markets enter a seasonally weaker period.

According to a Bank of America analysis cited by Business Insider, the S&P 500 has recorded its weakest average three-month performance between August and October when looking back to 1928. In years when the index declined, the average correction during the period was 7.35%.

Why Roubini remains bullish on AI

Despite these risks, Roubini's outlook is not entirely bearish.

His optimism is largely linked to the AI investment boom. Technology companies are spending billions on AI infrastructure, while the potential productivity gains from those investments could support the broader investment landscape.

Roubini therefore sees a market environment where significant risks remain, but where the AI-led investment boom could continue to provide an important source of optimism.

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