A credit crunch is coming for the US that'll tip the economy into recession, 'Dr. Doom' economist Nouriel Roubini warns

• "Dr. Doom" economist Nouriel Roubini said a sure-fire credit crunch will tip the US into recession.
• "That credit crunch is going to make the likelihood of a recession, a hard landing, much greater than before," he said.

The US is heading for a credit crunch that'll tip the economy into recession, according to "Dr Doom" economist Nouriel Roubini.

The New York University professor warned the turmoil hitting the US banking sector is only going to get worse, speaking in a Fox Business interview Monday.

Roubini — who predicted the 2008 economic slump — zeroed in on the troubles at smaller US regional lenders in the wake of Silicon Valley Bank's collapse, which face large outflows of deposits as worried customers pull their money and park it elsewhere.

Given that lack of confidence and the pressure on deposits, many believe those banks are likely to make it more difficult for consumers and businesses to secure a loan — otherwise known as a credit crunch.

"I think the problems are with the regionals. But the regional banks are significant lenders to households for mortgages, for small businesses, for SMEs, for commercial real estate. And therefore we're going to have a credit crunch," Roubini said.

"That credit crunch is going to make the likelihood of a recession — a hard landing — much greater than before. So we're facing a serious credit crunch for a good chunk of the US banking system," he said.

Regional banks have taken the brunt of fears around the collapse of SVB and Signature Bank. Customers worried about the safety of their funds have moved them to money-market funds and larger banks — which in turn has added to concerns about a tightening in credit conditions.

The Wall Street economist has spent the past year ringing the alarm about an economic catastrophe he says is just around the corner. Last week, he warned the US is entering a "doom loop" that will push its economy into a stagflationary debt crisis he has been flagging for months.

With inflation still way above the Federal Reserve's 2% target, chances of a recession are high, according to Roubini. That's because it raises the likelihood of further interest rate hikes.

"Well, the worst is ahead of us, because the Fed and other central banks are facing a dilemma: They have to reach price stability, they have to maintain economic growth and avoid a recession, and they have to maintain financial stability," he said.

"Interest rates have to rise further because inflation is still well above target. That's going to cause a hard landing of the economy," he added.

The US central bank has already lifted benchmark rates to upwards of 4.75% from almost zero 12 months ago — the steepest jump in US borrowing costs since the 1980s – in a bid to cool surging inflation.

Higher rates encourage saving over spending, which can tame the pace increases. But they can also dampen demand, pull down asset prices, and elevate the risk of a recession.