Economists debate the possibility of a recession in the next year. The U.S. is stuck at a stagflation station.
This economic crisis is characterized by high inflation and low growth.
In the first quarter, the U.S. economy shrank 1.5%. But, consumer prices increased 8.6% in May. Investors are growing concerned about the Federal Reserve’s ability to create a soft landing, which prevents recession and slows down inflation. In testimony, Fed Chair Jerome Powell acknowledged this to Congress.
Mohamed El-Erian, economist and president of Queens’ College, Cambridge University, stated that the baseline was stagflation in an interview with reporters. You can also have a balance in the wrong direction, which is recession.
Not everyone shares this view. According the Bank of America’s monthly survey of managers of funds, “Stagflation Fear,” reached its highest point since June 2008.
According to the report, consumers are on the exact same page. According to the University of Michigan’s Consumer Sentiment Index “consumers fear stagflation,” ING economists stated. Only 30% of respondents believe that income growth in the next five years will outpace inflation.
Stagflation doesn’t only affect the U.S. economy.
The World Bank has lowered its global growth forecast from 4.1% to 2.9% earlier this month. The World Bank also warned that there are significant downside risks to the global outlook, such as increased geopolitical tensions, prolonged periods of stagflation reminiscent of the 1970s, increasing borrowing costs, and worsening security. “
Europe is especially at risk because of its exposures to Russian natural gases and Ukrainian grain.
Jack-Allen Reynolds, senior Europe economist at Capital Economics, had one simple answer to the data: “Stagflation’s here!” “