Will This Economic Stagflation Lead To A Recession?
EDITOR'S NOTE: The negative consequence of taking action with poor timing is something we’ve all experienced. The situation becomes even more difficult if the objective happens to be a moving target. But the worst-case scenario might be if poor timing and a moving target were coupled with a delayed response. And that’s the situation the Fed faces with regard to inflation. The consequence is that we’re now looking at a series of steep cliffs: “runaway” inflation, and, as Goldman Sachs estimates, either “stagflation” or “recession.” The Fed will have to “pick your poison,” so to speak (emphasis on “your”). The article below cites a number of prominent figures on Wall Street who’ve decided to chime in on the central bank’s ignorance-driven responsibilities and actions. Listen to what they have to say. Their rationales and predictions are critical to any investor trying to position his or her portfolio based on an educated forecast.
Inflation has hit America hard and the economy seems to be reeling. So what’s to happen? Goldman Sachs has a prediction.
The multinational investment bank apparently thinks the Federal Reserve will either keep hiking interest rates into stagflation or it’s hoping to set the country up for a recession.
Stagflation is characterized by slow economic growth and relatively high unemployment – or economic stagnation – simultaneously accompanied by rising prices, according to Investopedia.
Stagflation happens when inflation and economic stagnation (such as a rise in unemployment due to a jobs shortage) occur simultaneously.
Financial commentator and stockbroker Peter Schiff has been watching the Purchasing Managers’ Index (PMI) and he suggested there are signs of a recession. The PMI is an indicator of economic health for manufacturing and service sectors, according to The GlobalEconomy.com.
“We have more evidence the U.S. economy is headed into #recession just in time for the first of many planned rate hikes. The Chicago Fed Nat. Activity Index came it at minus .15 and the Jan. PMI Composite Index crashed to 50.8. But as the economy rapidly cools #inflation heats up!” Schiff tweeted.
We have more evidence the U.S. economy is headed into #recession just in time for the first of many planned rate hikes. The Chicago Fed Nat. Activity Index came it at minus .15 and the Jan. PMI Composite Index crashed to 50.8. But as the economy rapidly cools #inflation heats up!
— Peter Schiff (@PeterSchiff) January 24, 2022
On Jan. 23, Goldman Sachs announced that it expected the Federal Reserve to enact four interest rate hikes this year and that more hikes are possible due to the surge in inflation, CNBC reported.
“We see a risk that the [Federal Open Market Committee] will want to take some tightening action at every meeting until the inflation picture changes,” Goldman economist David Mericle told clients in a note.
“Our baseline forecast calls for four hikes in March, June, September, and December,” Mericle wrote. “But we see a risk that the [Federal Open Market Committee] will want to take some tightening action at every meeting until the inflation picture changes.”
Inflation is running at its highest 12-month pace in nearly 40 years.
Billionaire Jeff Gundlach said he sees recession hitting soon. The Doubleline Capital CEO warned about “a recession in the later part of this year” in a recent interview with Yahoo Finance.
Doubleline Capital has more than $137 billion in assets under management, Bitcoin.com reported.
“I think the bond market is already showing enough of a recession indicator that by 2023 it seems pretty likely,” Gundlach warned. “I don’t think a lot of the Fed officials, economists, and investors appreciate the fact that the economy keeps buckling at lower and lower interest rates, so I think the Fed only has to raise rates four times, and you’re going to start seeing a plethora of recessionary signals.”
Originally posted on The Moguldom Nation.
