Fast Take
Federal Reserve Chair Jerome Powell dismissed considerations about stagflation following the discharge of the most recent US financial information. In his speech following the Fed’s choice to maintain fed funds charges at 5.25%-5.50%, Powell acknowledged:
“So I don’t see the ‘stag’ or the ‘flation’.”
Stagflation refers to a poisonous mixture of stagnant financial development, excessive unemployment, and persistently excessive inflation – one thing the US has not skilled for the reason that Seventies. Nonetheless, current information factors counsel the state of affairs could also be extra regarding than Powell let on.
Knowledge from Buying and selling Economics exhibits that unemployment ticked as much as 3.9% in April, 0.1% above expectations. Whereas nonetheless under 4%, it has risen 0.5% from the lows as elevated rates of interest pressure the labor market.
Headline inflation stays stubbornly excessive at 3.5%, lacking the two% goal for over three years now. Financial development has considerably slowed, with GDP rising simply 1.6% within the newest quarter after peaking at 4.9% in Q3 2023.
Whereas the surface-level information might not scream stagflation but, digging deeper raises purple flags. The Fed could also be shedding its window to get inflation underneath management earlier than unemployment spikes additional.
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