A majority of investment fund managers now say they see “below-trend growth and above-trend inflation”— aka stagflation — happening this year.
stagnation and high inflation, characterized by soaring consumer prices as well as high unemployment. The phenomenon ravaged the U.S. economy in the 1970s and early 1980s, as spiking oil prices, rising unemployment and easy monetary policy pushed the consumer price index as high as 14.8% in 1980, forcing Fed policymakers to raise interest rates to nearly 20% that year. Although the investment managers believe that inflation in the U.S.
Consumer prices jumped 8.3% in April on an annual basis, close to a 40-year high, and are expected to remain elevated in coming months. As a result, the Fed is embarking on its most aggressive course to tighten policy in decades, raising rates by a half-point earlier this month and signaling that similarly sized hikes are on the table at coming meetings.
There are growing fears that the Fed will trigger a recession because hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending. Bank of America, as well as Fannie Mae and Deutsche Bank, are among theIn this Jan. 29, 2020 file photo, Federal Reserve Chair Jerome Powell pauses during a news conference in Washington.
Powell has acknowledged there could be some "pain associated" with reducing inflation and curbing demand but pushed back against the notion of an impending recession, identifying the labor market and strong consumer spending as bright spots in the economy. Still, he has warned that a soft landing — the sweet spot between cooling demand without crushing it and triggering a recession — is not assured.
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