If The Economy Avoids A Recession, It’s Not Out Of The Woods

If the American economy avoids the recession caused by tariffs, economists see the increasing risks of economically painful “stagflation”.

The forecasts are still divided on whether President Donald will drag Trump’s business war economy into recession. But even if the recession is avoided, many recent forecasts have called the risks of high inflation and slow economic development duration “stagflation”. Several forecasts, including Federal Reserve officials, will slow down the estimated tariffs and consumer will hurt the job market by increasing prices.

Lindsay Pegza, the chief economist of Stifel Financial, is among those who believe that job market and consumer expenses are quite flexible that the economy will probably avoid a lump sum recession from business wars, assuming that recently announced tariffs are negotiated.

However, this does not mean that everything will be Rosie for the economy. He believes that the economic development for the next few quarters will be with zero.

“You are essentially in a non-united economy, and if we see that non-disrespect ends in the second half of the year, I think the period of time-time interruption from time to time is a significant risk to the American economy,” he said. “In fact, I would say that there is a bigger risk than a lump sum recession or recession.”

Piegza is not the only major economist who looks stagflation alarm. Adam Posen, president of the Peterson Institute for International Economics, raised the issue in an article for foreign affairs this week. He has written that America’s potential impacts increase tariffs by 145% against China, as well as a ban on trade with the country.

“The supply shock from China by significantly reducing or raising zero, as wants to achieve Trump, would mean, the macroeconomic nightmare seen in the 1970s, and during the Covid -19 epidemic, when the economy increased and inflation increased simultaneously,” Posen wrote.

How bad is it? In the 1970s, last time the US had passed through high inflation and slow growth, economists invented a way of measuring it. It is a combination of inflation rate and unemployment rate called “Duration Index”. The name suggests how difficult it is for people’s budget when prices increase and difficulty finding work in a stable economy.

Fed struggles with historically stability

Everyday it can be as hard on the domestic budget, it is not even in the park for central bankers.

Their main tools to influence the economy- monetary policy- may help fight inflation or promote job market, but both not at the same time. The fed can cut its benchmark Fed fund rate to promote the economy, but it may be reluctant to do so that inflation was above the central bank’s 2% annual rate target. Fed may increase rates to fight inflation, but already injured job market will be damaged.

Federal Reserve Chairman Jerome Powell on Wednesday accepted the difficulty of fighting staples in a speech, calling it a “challenging landscape”.

“Stagflation actually puts policy makers into the corner, providing traditional monetary policy matrix that will essentially used to stimulate the economy,” Pigza said. “Fed will be willing to raise interest rates to try to stop inflation. But the economy is already very dull. And vice versa. So I think this point is the biggest risk of the American economy at this point.”