Key Insights: the Risk of Stagflation in the U.S. Economy
Keybridge assesses the risk factors and potential impact of stagflation on the U.S. economy
Inflation fears in the U.S. continue to escalate, even as the Federal Reserve has been responding to the U.S. economic slowdown and the worsening credit crunch with massive injections of liquidity and sharp interest rate cuts. Rising inflation could greatly complicate the Fed's policy stance, undermine confidence in its judgment, and even require a hike in interest rates later in 2008 to undo possible damage. Stagflation could also lead to further depreciation of the U.S. dollar, which has been plunging in value on forex markets.
A combination of high prices and flagging economy growth warrent some comparison between the current economic environment and similar conditions in the late 1970s and 80s. In its comparison and analysis, however, Keybridge Research concludes that although risks remain, the likelihood of serious stagflation remains low.
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