Around this time last year, Nouriel Roubini, the famed economist who has earned the sobriquet “Dr. Doom” on Wall Street for his gloomy outlook on markets, warned that it would be “mission impossible” for the U.S. to avoid a severe recession in 2023. At the time, the CEO of Roubini Macro Associates feared that the Federal Reserve, in its quest to tame inflation that reached a four-decade high above 9% in June 2022, would ultimately slow the American economy to a standstill with its aggressive interest rate hikes. Highlighting record high global private and public debts and the steadily increasing economic price tag of the war in Ukraine, he forecast a “stagflationary debt crisis” or even “a variant of another Great Depression.”
Now though, Roubini believes the U.S. economy may have avoided these terrible fates—at least for the time being.
“The good news is it doesn’t look like we are going to have a real hard landing,” he told Bloomberg Monday, referencing economists’ favorite aviation analogy for a recession. “The question is whether we are going to have a soft landing or a bumpy landing—a bumpy landing being a short and shallow recession—and on that debate, we don’t know yet.”
The comments mark a big shift in tone from Roubini, who in July 2022 said that his peers predicting a short and shallow recession at the time were “totally delusional.” But a lot has changed since last July. Fed Chair Jerome Powell has managed to cool inflation to from its 9.1% pandemic-era high to just 3.7%, all while maintaining U.S. GDP growth; supply chains, which were thrown into chaos during the pandemic, have mostly healed; and despite a short-lived regional banking crisis in March, the S&P 500 is up over 16% year to date.
The good news has even Roubini feeling a bit more optimistic about the U.S. economy’s near-term prospects, but he’s still worried about a mild recession.
As Fortune previously reported, even the most bullish of forecasters admit that it’s still too early to declare the economy has had a “soft landing”—where inflation is controlled without rising interest rates sparking job-killing a recession. And Roubini cited a number of risks that could still hurl the U.S. economy into a downward spiral, including the strain of “the long and variable lags of monetary policy” and the potential for “credit issues”—or a lack of available loans and credit for businesses amid regional banks’ problems.
But perhaps the most credible risk to the economy comes from “sticky” inflation. Roubini noted that oil prices, which played a big part in the rise of inflation during the pandemic, have soared in 2023 due to OPEC and Russian supply cuts. In the U.S., West Texas Intermediate crude prices have jumped roughly 20% this year from to over $91 per barrel, and, according to the economist, higher oil prices “imply higher inflation and lower economic activity.”
Although inflation has fallen substantially from its four-decade high, it remains well above the Fed’s 2% target, which could force the central bank to raise interest rates yet again. And Roubini fears that further Fed tightening could spark a mild recession.
“So I would say whether we’re going to have a true soft landing rather than a short and shallow recession still is an open question, even for the United States,” he concluded.