With the Federal Reserve’s recent economic projections, many are now shifting their focus from worries about inflation to concerns about stagflation potentially hitting the United States.
For those who need a refresher from the high school economics class, stagflation is a period of both high inflation and high joblessness. The last time the U.S. was seriously hit with stagflation was in the 1970s, which some argue saw the worst economic conditions since the Great Depression.
While the country may have outperformed its peers during the pandemic, some are worried that economic growth may come to a halt, as many are tampering down their estimates, while at the same time increasing their estimates of inflation.
Mark Hamrick, an analyst with Bankrate, shared with WWL News Radio that while concerns of economic downturn are rising, conditions would need to grow far worse before stagflation truly hits the U.S.
So what are the conditions that lead to stagflation? Hamrick says the Federal Reserve has been pondering this question for weeks. Still, he says the situation isn’t nearly as bad as it was in the 1970s, especially considering where inflation is currently sitting.
“We’re complaining about inflation that’s roughly at a 2.5% level, not in the high single digits or even low double digits and in some cases high double digits,” he said.
While he acknowledged it’s still not pleasant to deal with, he thinks that for true “stagflation” to hit the U.S., we would need to see a “substantial rise” in unemployment, which is currently sitting at around 4%.
“Right now, I don’t think that that is a realistic concern,” Hamrick said of economic conditions worsening to true stagflation levels.
Fed officials have warned that while inflation over the last few years has been difficult to deal with, stagflation would be even more of a struggle. Even worse, tariffs from the Trump administration may be pushing the country right towards a stagflationary period.
“There is nothing more uncomfortable than the stagflationary environment...where both sides of the mandate start going wrong. There is not a generic answer... Which is worse? Is it bigger on the inflation side? Is it bigger on the job market side?” Chicago Fed President Austan Goolsbee said Friday on CNBC. “Higher tariffs raise prices and reduce output, so that is a stagflationary impulse.”
While we aren’t there yet, Hamrick says that Americans should prepare themselves as “recession risks are clearly rising.”
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“It’s something to be aware of,” he said. “And I would always say, ‘What should we do about it?’ Save more money. Have more money in emergency savings, and pay down debt.”
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