We were sort of one supply chain glitch away from stagflation.
~ Stephen Roach, high-profile economist
The costs of goods and services rose sharply again in August, leaving the U.S. inflation rate at a 30-year high, the Department of Commerce reported. That led to the Federal Reserve chairman to sound alarms.
Jared Bernstein, who is currently a member of the Council of Economic Advisers for the Biden administration, predicted to Fox Business that inflation would end around 4% this year before settling back down to 2.3% in 2022.
“The catch,” Fox Business reported, is that “he cannot say when that will happen and believes we might see elevated inflation into the middle of next year.”
Federal Reserve Chairman Jerome Powell, during a recent panel discussion acknowledged that rising inflation will likely last into next year.
That’s not quite so temporary.
Powell said it is “frustrating to see the bottlenecks and supply chain problems not getting better” but actually “getting a little bit worse,” and added, “We see that continuing into next year probably and holding up inflation longer than we had thought.”
They aren’t downplaying it quite like they were.
The Commerce Department’s report showed that the 12-month rate of inflation edged up in August from 4.2% to 4.3% — the highest rate since 1991, when George H.W. Bush was president, according to MarketWatch.
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“Stagflation is here,” Bank of America global research analysts concluded following news of the report.
“This is the first week that markets realized that global growth could be weak and inflation more persistent,” Athanasios Vamvakidis, BofA’s global head of G10 FX strategy, told MarketWatch. “Energy-price increases were a wake-up call for markets, and the scenario that’s now more likely to develop is one in which we get higher inflation and weaker output.”
“We could easily see inflation at 3% to 4% for a while,” added Gang Hu, a managing partner at WinShore Capital Partners. “We are not at the end of this supply-side destruction and are entering a period where nobody knows what transitory inflation means.”
Wharton finance professor Jeremy Siegel, who is known for his accurate market predictions, told CNBC over the weekend, “We’re headed for some trouble ahead.”
“Inflation, in general, is going to be a much bigger problem than the Fed believes,” he warned.
At the same time, Biden is calling for the debt ceiling to be raised and the passage of an unnecessary $3.5 trillion bill that is actually $5 trillion.
With the US stocks are in freefall and Wall Street strategists are worried about the political gamesmanship in Congress, President Biden on Monday will call for more bad policies.
We are heading for stagflation and the White House wants to make it much worse.
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