Closely-watched economist Nouriel Roubini says markets are overestimating how many beneficial policies President Donald Trump can enact, and they're underestimating the potential damage he could do, but the cracks won't begin to show for some time.
Roubini, CEO of Roubini Macro Associates, told CNBC at the China Development Forum on Saturday that positive emotions are dominating right now, but doom could be on the horizon.
"[Markets] are overestimating the positives of the US-Trump policies. Infrastructure, stimulus, deregulation, tax cuts: I think Trump will achieve much less on those dimensions," he said. "And they're underestimating the risk that the U.S. protectionist policies are going to lead to trade wars, that the restrictions on immigration are going to slow down labor supply, and that micromanaging the corporate sector is going to be negative."
Roubini added that the policy mix for the U.S. also presents a challenge: Fiscal stimulus is going to force the Fed to tighten more, it's going to push up interest rates and the dollar, he said. "In a way it's going to weaken the economy over time."
Still, he acknowledged, confidence is reigning.
"Over the next six to 12 months, maybe the positives are going to dominate because you have animal spirits, a build-up in consumer and business confidence, you'll have some policy action. The economy is growing and hopefully those positives are going to stay for a while," he said.