Economist Nouriel Roubini believes the markets are the last line of defense against President Donald Trump’s ‘worst instincts’ on the economic front.
What Happened: On Thursday, Roubini, who is popular referred to as “Dr. Doom” for predicting 2008 financial crisis, posted on X with a link to his latest Project-Syndicate column detailing the options in front of Trump, and the different paths that U.S. economy can pursue from here.
In the tweet promoting his article, Roubini writes that either Trump will back down from his “stagflationary policies to concentrate on pro-growth measures” or the resulting financial stress and recession will lead the Republican Party to lose the 2026 midterm elections.
Roubini argues in his column that while some of Trump’s policy ideas, such as tech investment and deregulation will boost growth, others are inherently inflationary and destabilizing.
Among the inflationary and destabilizing policies flagged by Roubini include protectionist tariffs, anti-immigration crackdowns, unfunded deficits, and acts such as Trump’s recent attacks on the Federal Reserve’s independence.
“These stagflationary policies,” he says, “will slow growth and increase prices.” But the real constraint to these policies, he believes, will come from financial markets themselves. “Market discipline will again kick in with a vengeance,” he warns, predicting that the resulting higher yields will either force a policy shift, or a recession.
He further believes that this market discipline, “not least from bond vigilantes,” will lead to Trump’s more moderate advisors getting the “upper hand.”
Roubini also dismissed Trump’s dollar-weakening agenda as “far-fetched, bordering on lunacy,” noting that any attempt to orchestrate a so-called “Mar-a-Lago Accord” would likely be met with capital flight and spiking yields.
Why It Matters: The term “bond vigilantes,” which refers to bond market investors who protest against the government’s fiscal and monetary policies by pushing yields higher, has gained a lot of prominence in recent weeks.
Trump’s initial tariff pause on the 9th of April has similarly been attributed to the spiking bond yields, with Ed Yardeni of Yardeni Research saying that they’ve “hit another homerun.”
Macro strategist Craig Shapiro said last week that the Federal Reserve should do “nothing at all” in response to the rising Treasury yields, and just “let the bond vigilantes eat.”
This is precisely the kind of “market discipline” that Roubini has discussed in his post on X and the column in Project-Syndicate.
Photo Courtesy: seyephoto on Shutterstock.com
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