Risk of Stagflation; Inflation-Jobs Trade-Off

Rising Risk of Stagflation

  • Growth can be impaired if consumer spending exceeds rate of inflation
  • Withdrawal of fiscal, monetary stimulus could slow economic growth
  • Rising wages and producer prices could cut into corporate profit growth
  • Can the Fed deliver a ‘soft landing’ for the economy without a recession?

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Will There Be an Inflation-Jobs Trade-Off?

  • Minor changes to rates unlikely to lead to rise in unemployment
  • When rate hikes exceed inflation rate, recession may occur
  • Fed is in first stage of raising rates, shrinking balance sheet

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