- Some experts are worried that the US is headed for “stagflation”— an economic mess last seen in the 1970s.
- Stagflation requires high inflation, high unemployment, and low GDP growth.
- Since the economy is still booming, the stagflation story makes no sense.
- Neil Dutta is Head of Economics at Renaissance Macro Research.
- This is an opinion column. The thoughts expressed are those of the author.
The rate of inflation this year has been quite the surprise. Price increases have stuck around for longer than most analysts were expecting, myself included, and now concerns are turning toward something more ominous. Many policymakers, economists, and media have started to describe the creeping price hikes as “stagflation” — an economic situation where inflation is soaring, unemployment is high, and GDP growth is slow. The term was coined to describe the malaise of the 1970s economy.
And now fears that we may be in a repeat of those bad old days are popping up everywhere. The New York Times ran a story with the headline:, “A Stock Market Malaise with the Shadow of 70s-Style Stagflation.” Ditto Bloomberg: “What is Stagflation and Why Is Wall Street Suddenly Talking About it?” Even Fed Vice Chair Richard Clarida remarked that he sees a “flavor” of stagflation, albeit not a trend.
While stagflation is a risk, low in my view, that is not what is going on right now. The US economy is presently experiencing an inflationary boom — yes, there’s inflation but it’s coming with strong growth. And if this characterization is right, the Federal Reserve