The Fed’s Stagflation Problem

Summary

  • Stagflation, a combination of low economic growth and high inflation, is a concern for the US economy.
  • The Federal Reserve is facing a conundrum as it tries to maintain a soft economic landing while reducing inflation.
  • Factors contributing to inflation include the economic impact of the pandemic, OPEC’s manipulation of oil supplies, and a housing shortage.

An old “new word” has entered the economic and market narratives in recent weeks: Stagflation. It’s an old word because the United States suffered from two bouts of “stagflation” from the middle 1970s to early 1980s. It’s a new word because there’s a new generation of market participants.

Stagflation is an economic cycle when economic growth is low (the “stag”) and inflation (the “flation”) are high. Low growth in past bouts also included high unemployment. A key factor in those stagflations was OPEC’s manipulation of oil supplies.

I have written about the possibility of stagflation twice here on Seeking Alpha:

Today, I will cover the conundrum the Federal Reserve faces as it tries to maintain the soft economic landing while continuing to drive down inflation.

Read the rest of the story on Seeking Alpha…

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