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The U.S. economy is now showing signs of stagflation and could be headed towards a 1970s type of situation according to experts, the Daily Caller reported.
U.S annual economic growth measured just 1.6% in the first quarter of 2024, the lowest since quarter two of 2023 and down signifcantly from the 5.8% seen in quarter three and 3.4% seen in quarter four of 2023. This follows inflation continuing to run well above the Fed’s 2% target. Personal consumption expenditures rose by 2.8% in March, slightly faster than expected.
One research fellow at the Hertiage Foundation’s Grover M. Hermann Center said that we aren’t at risk of stagflation, but that we are already there.
“It’s not so much that we risk stagflation as we’re already there,” E.J. Antoni said. “We have basically pulled forward trillions of dollars of economic growth by borrowing from the future, but that must be repaid at some point. And it is highly inefficient as well.”
“Sadly, the indicators point to stagflation for quite some time because the excessive government spending that caused this problem isn’t letting up,” Antoni added.
“A couple of Fed officials are floating ideas of maybe additional rate hikes — that’s not the consensus — but the fact that it’s being talked about now is kind of indicative of the situation that we’re in,” Mike Reynolds, vice president of investment strategy at Glenmede, told Business Insider.
Reynolds said that if the Fed is forced to hike rates again, consequences could come in 2025.
Stagflation is an incredibely difficult situation to handle, according to Investopedia. Trying to fix one of the issues with the economy could lead to the others getting worse. Stagflation is when the economy experiences slow growth, high unemploymen rate as well as high inflation.
During the 1970s, the oil crisis caused five consecutive quarters of negative GDP growth, inflation doubling in 1973 and hitting double digits in 1974, and unemployment hitting 9% in 1975.
The U.S. national debt now stands at $34.7 trillion, an increase of over $6 trillion since President Biden took office in January 2021.
The White House continues to downplay concerns that the economy is in trouble. Following Thursday’s GDP report, the White House released a statement from President Biden claiming that the latest data “shows the American economy remains strong, with continued steady and stable growth. The economy has grown more since I took office than at this point in any presidential term in the last 25 years — including 3% growth over the last year — while unemployment has stayed below 4% for more than two years. But we have more work to do. Costs are too high for working families, and I am fighting to lower them.”
Experts previously expected 3 to 4 rate cuts before the end of 2024, but that appears to be more and more unlikely. CME FedWatch tool, which tracks the probability of rate cuts or hikes, showed that there is over a 90% chance that the Fed will keep interest rates where they are currently at the next meeting in June. Traders now see just two rate cuts before the end of 2024 and expect that the first one won’t come until the fall.