Gross domestic product grew 2% in the third quarter, a marked slowdown from the 6% expansion in the two most recent previous periods. In the meantime, some economists worry the US could face the worst of both worlds-slowing of economic growth and rising inflation, known as stagflation. Some economists fear rising stagflation risks The non-profit think tank’s economists say incomes for women and minorities have taken the brunt of that overreach in the past. Tightening interest rates too soon-the main tool for combating inflation-can worsen wage inequality, according to the Economic Policy Institute research. Now that inflation fears are growing, the Fed has to balance a surprising spike in prices against the risk of snuffing out growth in jobs and wages. Businesses are raising prices (if they can) as demand outpaces supply. As the economy revs back up, it’s been hit with shortages in everything from housing and microchips to available workers. To help workers and businesses cope with the coronavirus outbreak, Congress spent trillions of dollars and the central bank has gone out of its way to make borrowing and capital plentiful. Officials like Fed chair Powell are in a bind. “It’s often the case that the people that can least afford it get hit really hard.”
“The inflation I face is different than the inflation you face,” Harvey said. Some measures of apartment rental prices have jumped by double digits, for example, while home prices have soared nearly 20%. Economists like Harvey and Summers say everyday people and businesses are experiencing headier inflation than the consumer price index (CPI) would suggest.
A casual look at the data suggests a much different and more complex story.” Why is inflation rising?Ĭonsumer prices in the US jumped more than 5% in September from a year earlier, a bigger increase than expected. “The policymakers have worked really hard to talk down inflation, saying it’s transitory and stuff like that. “People are finally realizing that inflation is actually higher, and will be higher, than the policymakers have been saying,” said Campbell Harvey, an economist at Duke University who pioneered the use of the yield curve as a forecasting tool. The former chief economist at the World Bank said breakeven rates are part of the reason for his concern. Others are even more alarmed-former Treasury secretary Larry Summers said the US is more at risk of losing control of inflation than at any time during his career. That’s the highest forecast of price increases in more than 10 years, according to that measure.Īfter insisting that rising inflation is transitory, US Federal Reserve chair Jerome Powell has acknowledged that supply chains have been crimped for longer than expected, which could cause prices to rise faster than anticipated. Institutional investors are betting inflation will rise to about 3% in five years, according to the so-called breakeven rate, which is the difference between the five-year Treasury yield and five-year inflation-indexed securities. The $22 trillion market for US government bonds is getting ready for the highest inflation in more than a decade.īond investors are skittish about rising prices because they eat away their fixed returns.
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