Daniel DiMartino Booth, CEO and chief strategist at QI Research, discusses whether persistently high inflation data will delay the Fed’s money-making interest rate cuts.
Some Wall Street strategists us economy Amid recent signs of high inflation and economic cooling, we could be heading towards a 1970s-like stagflation scenario.
A series of inflation reports for the first three months of 2024 were all higher than expected, raising concerns that overcoming inflation may be more difficult than previously thought. In addition, economic growth in this era 1st quarter It was unexpectedly weak, rising at an annualized pace of just 1.6%, the slowest pace since 2022.
“This was a worst-case report for both countries, with lower-than-expected growth and higher-than-expected inflation,” David Donabedian, chief investment officer at CIBC Private Wealth US, said of the latest GDP data. . “The biggest setback is the acceleration of core inflation, particularly in the services sector, which is rising at an annual rate of more than 5%.”
The combination of economic stagnation and high inflation is known as “stagflation,” and it is considered the worst possible outcome for America. federal reserve.
Fed’s favorite inflation gauge rises faster than expected in March
This phenomenon devastated the U.S. economy in the 1970s and early 1980s, with soaring oil prices, rising unemployment, and easy monetary policy driving the consumer price index as high as 14.8% in 1980. federal reserve Policymakers decided to raise interest rates to nearly 20% that year.
Concerns about stagflation grew in 2022 as the Federal Reserve began aggressive interest rate hikes to curb rampant inflation, but there are signs that price pressures are subsiding without significantly hurting economic growth. Last year, most of those concerns receded.
Why are groceries still so expensive?
However, there have been some recent signs that inflation may prove more robust than expected, even as economic growth has slowed.
A woman shops for groceries at a supermarket in Monterey Park, California, on October 19, 2022. (Frederick J. Brown/AFP/Getty Images)
Inflation has fallen significantly from its peak of 9.1%, but progress since the summer has been roughly flat. According to the latest government data, the consumer price index rose 3.5% in March, the highest level in six months.
JPMorgan Chase & Co. CEO Jamie Dimon is among the experts who have recently sounded the alarm about the possibility of a return to the stagflation scenario seen in the 1970s.
“I think it’s possible that this could happen again,” Dimon, the chief executive of America’s largest bank, said at a debate at New York’s Economic Club last week. “I’m afraid it’s going to look more like the ’70s than anything I’ve ever seen.”
Jamie Dimon warns that inflation, interest rates may remain high
Some Wall Street strategists worry that the U.S. economy could be heading toward a 1970s-style stagflation scenario. (John Taggart/Bloomberg/File/Getty Images)
Federal Reserve Chairman Jerome Powell recently said,lack of further progressHe cast doubt on the outlook for rate cuts this year and cited inflation this year. Officials kept the option of lowering rates on the table, but said there was no urgency given the economy’s surprising strength and economic risks. Resurgent inflation.
Investors had previously bet on a series of aggressive rate cuts this year, but tempered their expectations after a hotter-than-expected inflation report and a cautious message from Fed officials.
| ticker | safety | last | change | change % |
|---|---|---|---|---|
| Me: DJI | Dow Jones Average | 38239.66 | +153.86 | +0.40% |
| I:Comp | Nasdaq Composite Index | 15927.900321 | +316.14 | +2.03% |
| SP500 | S&P500 | 5099.96 | +51.54 | +1.02% |
Rising interest rates tend to raise interest rates on consumer and business loans, forcing employers to cut spending and slowing the economy. Rising interest rates have pushed the average interest rate on a 30-year mortgage above 7% for the first time in years. Borrowing costs for everything from home equity lines of credit to auto loans and credit cards have also skyrocketed.
But the rapid rise in interest rates has not stopped consumers from spending and businesses from hiring, emboldening Wall Street optimists who say the economy is not in a stagflation scenario.
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The labor market continues to move at a healthy pace; Employers added 303,000 people The number of new jobs in March was significantly higher than economists expected. The number of job openings remains high, and the unemployment rate has fallen slightly to 3.8%.
Bill Adams, chief economist at Comerica Bank, said: “Incomes and consumer spending rose solidly in March, indicating that the first-quarter GDP slowdown announced yesterday is not a sign of a stagflationary economy.” It’ll give you some peace of mind.”
