Former Morgan Stanley Asia CEO and Yale economist Stephen Roach says a double-dip recession is coming but the trigger hasn't yet been identified.
“I’m in the double-dip camp,” Roach told CNBC, adding that much of the problem can be laid attributed to faulty Federal Reserve policy.
A double-dip recession is commonly defined as when the gross domestic product (GDP) growth slides back to negative after a quarter or two of brief positive growth. Or, a recession followed by a short-lived recovery, followed by another recession.
“The Fed needs to be strategic, it needs to be much more transparent in describing what an exit strategy would look like,” says Roach.
“I don’t think there’s any confidence in the markets, (that) the central bank in the United States is going to get us out of this quagmire we’re in right now and avoid a similar type of problem in the future,” Roach observes.
Roach says he wants the Fed to be “much more transparent in addressing the strategy and the types of policies that can finally get us out of this Japanese-style liquidity trap we’re in post the financial crisis of ’08 and ’09.”
Roach says that while the recently passed Dodd-Frank bill provided a “welcome recasting of a lot of financial issues” it’s not enough to repair the postcrisis, bubble-torn U.S. economy.
“The Dodd-Frank bill truly failed to address the shortcomings of U.S. monetary policy that haven been evident for a long time under Chairmen Greenspan and Bernanke, and until we get that piece of the puzzle right, I think we’re going to have another problem down the road.”
Reuters reports that Chicago Federal Reserve president Charles Evans believes the risks of a double dip have increased recently.
"A double dip is not the most likely outcome but I am concerned about how strong the recovery will be," said Evans, adding that the Fed's ultra-easy monetary policy is appropriate.
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