President Donald Trump looks on as his nominee for the chairman of the Federal Reserve Jerome Powell takes to the podium during a press event in the Rose Garden at the White House, November 2, 2017 in Washington, DC.
Former Indian central bank chief Raghuram Rajan warned that the biggest threat to the U.S. economy will come from President Donald Trump’s trade policies.
In an opinion piece titled “Is Economic Winter coming?” published on the Project Syndicate website Tuesday, Rajan said the old rules governing macroeconomic cycles no longer seem to apply and it remains to be seen what might cause the next recession in the U.S.
“But if recent history is our guide, the biggest threat stems not from the U.S. Federal Reserve or any one sector of the economy, but rather from the White House,” Rajan, who is currently a professor of finance at the University of Chicago Booth School of Business, said.
He further highlighted that Trump’s administration “doubled down” on its trade war with China just after the Fed embarked on its rate rising path last year.
“After markets started tumbling in late 2018, the Fed backed off. With a comprehensive deal to resolve the trade war nowhere in sight, and with a formal impeachment inquiry into Trump now underway, the Fed is unlikely to tighten monetary policy anytime soon,” Rajan said.
Rajan Raghuram at Jackson Hole, Wyoming August 24, 2018.
David A. Grogan | CNBC
Meanwhile, a second factor Rajan points to is geopolitical risks such as the attack on Saudi Arabia’s oil facilities in September. “A spike in the price of oil could tip the global economy into recession.”
Rajan who served as the governor of the Reserve Bank of India for three years, from Sept. 2013 to Sept. 2016, said while recessions are unpredictable by nature, the greatest threat is not rising rates but unforeseen actions in areas such as trade and geopolitics.
“If the world had fewer wannabe strongmen, the global economy would be much stronger than it is. Unfortunately, most of today’s authoritarian leaders are there because voters put them there.”
CNBC reached out to the White House but a comment was not immediately available.