A top economic expert, who served in former President Barack Obama’s administration, has issued an ominous warning that Joe Biden is driving America toward “stagflation.”
Steve Rattner served as counselor to the Treasury Secretary in the Obama admin.
During an appearance on Bloomberg’s “Wall Street Week,” Rattner warned that stagflation “often leads to recessions.”
While he said he was not predicting a recession, Rattner said he “wouldn’t be shocked if we had one somewhere down the line.”
Stagflation is a problem where we have to “address both an inflation problem and a growth problem at the same time,” he explained.
“The Fed is already going to raise interest rates this week,” Rattner said.
“There was some talk before Ukraine that it might do as much as 50 basis points to try to address the inflation problem.
“Jay Powell signaled in his testimony it’s more likely to be 25 because of the concerns about growth.
“And that’s fine to kind of keep the world — or the U.S. growing, but it doesn’t address the inflation problem.
“And sooner or later, the chickens are going to come home to roost.
“I was a New York Times economics reporter in the 70s. I was at Paul Volcker’s press conference when — in 1979 when he announced his whole new framework.
“I’m not suggesting we’re going to go back to that, but this is the first time since then — since — certainly, since the early 80s that we have had to address both an inflation problem and potentially a growth problem at the same time.
“That’s what we call stagflation.
‘That often leads to recessions. I’m not predicting one, but I wouldn’t be shocked if we had one somewhere down the line as a result of all of this.”
The Conference Board forecasts that US Real GDP growth will slow to 1.7 percent (quarter-over-quarter, annualized rate) in Q1 2022, vs. 7.0 percent growth in Q4 2021. Annual growth in 2022 should come in at 3.0 percent (year-over-year).
Looking further ahead, we forecast that the US economy will grow by 2.3 percent (year-over-year) in 2023. In light of Russia’s invasion of Ukraine we are downgrading our 2022 and 2023 growth expectations and increasing our inflation forecast.
The Ukraine crisis is already having a major impact on oil, agricultural commodity, and metal prices around the world.
The conflict, and the resulting sanctions, will also trigger recessions in Russia and Ukraine, and directly impact many economies in Europe.
New supply chain disruptions will arise as well. These economic and market fluctuations are likely to impact the US economy.
The severity and duration of the negative impact on economies are difficult to predict. To address the inherent uncertainty, The Conference Board has developed three distinct scenarios for major commodity prices (oil, agriculture and metals) and economic fallout in Eastern Europe.
In terms of oil prices, these three scenarios yield Q2 2022 price peaks of $105 per barrel (Scenario 1), $125 per barrel (Scenario 2), and $150 barrel (Scenario 3) (average price for the full quarter).
The potential drag on US economic growth in 2022 under these three scenarios ranges from -0.3 to -0.8 percent year-over-year (YoY). Currently, scenario 2 appears most likely and has been adopted as the base case (a drag of -0.5 percent YoY).
Spikes in energy, food and metals prices result in a large increase in our inflation forecast in 2022. The most severe year-over-year price increases will likely be seen in Q2 2022 before starting to moderate toward the end of the year.
The resulting erosion of purchasing power will damage overall consumer spending and slow economic growth, with the worst hits occurring in Q2 2022 and Q3 2022.
The Federal Reserve will begin to hike interest rates in March, as widely expected, and could introduce a total of five 25 basis point increases over the course of the year.
The impact of COVID-19 on our forecast is diminishing, given a sharp decline in new cases and the lifting of many restrictions. However, new variants could pose a threat and should not be ignored.