The U.S. economy might be out of the frying pan and into the fire. After months—even years—of planning for a ona bet:recession, the country may find itself facing a different sort of calamity: ona bet:stagflation.
The fact that these two metrics made the latest data “ona bet:the worst of both worlds.” The Fed wants inflation to come down to its 2% goal, which hasn’t happened yet. More worrying, though, is inflation’s stubbornness and the difficulty in getting through the so-called last mile toward that mark. At the same time, inventors want to see strong GDP growth to bolster a stock market r🤡ally. At the moment it seems as if neither of those is happening.
Stagflation still isn’t upon the U.S. economy just yet because the unemployment rate isn’t high at the moment, which is the third requirement. Currently unemployment remains below 4%, indicating a healthy job market. Stagflation is a particularly to handle because trying to fix one of the contributing factors can sometimes make the others worse. It’s also a big worry for investors because it leaves them with no reliable source of returns. During periods of low growth and high rates, the stock market suffers, while the bond market declines in periods of high inflation.While Haefele is right to caution that a single disappointing report doesn’t mean stagflation will be a certainty, the market did get spooked. Yesterday the S&P 500, the Dow, and the Nasdaq Composite . Some tech stocks also this week, as𝔉 investors worried the potential for more inflation would mean higher rates,▨ although some of those stocks have since recovered after the initial worries stabilized.
For his part, Haefele told MarketWatch that he expects inflation to slow enough in the second half of the year to free up the Fed for lower rates. And he wasn’t alone in offering some perspective. Treasury Secretary Janet Yellen said the economy was on solid footing despite the poor growth numbers. “The economy is clearly performing very well,” Yellen Reuters on Thursday. “I certainly don’t see it as overheated. The labor market is the strongest labor market we’ve had in 50 years.” Others on Wall Street also preferred to look at the silver lining in the situation despite the looming dangers. “Another positive GDP print adds another notch to the belt for the soft landing argument,” Glenmede vice president of investment strategy Mike Reynolds wrote in an analyst note.