Stagflation Is Looming, Right? Wrong, Economists Say

Wherever you get your news, there's no escaping the perception that rising prices are breaking the US economy. Recession is almost a foregone conclusion on the Bloomberg terminal, which aggregates 150,000 news sources with every bulletin categorized and counted. Headlines with the word “inflation,” increased 345% to 186,000 times a month since the beginning of 2020, while “strong economy” declined 48% to 1,766 times monthly.

That's understandable amid a stock market rout and when so many prominent commentators, including former Treasury Secretary Lawrence Summers and former Goldman Sachs chief executive Lloyd Blankfein, have predicted resurgent inflation and now say recession is increasingly likely. They’re not impressed that US gross domestic product has rebounded from the Covid-19 shock at the fastest pace in modern times, overtaking its pre-pandemic high of $21.4 trillion. Nor are they relieved by the fact that the Federal Reserve's preferred measure of prices, the Personal Consumption Expenditure Core Price Index, is nowhere near replicating the runaway scourge of the 1970s despite rising the most this year since 1983.

Yet prophecies of imminent stagflation are drowning out a countervailing consensus among savvy economists, who see the US growing through 2024 as inflation subsides to a third of its current 8.3% rate.

Seventy-seven economists contributing to Bloomberg predict that US GDP will outperform the Group of Seven developed nations during the next three years. All 56 economists who provide quarterly forecasts not only see steady growth over seven consecutive quarters but also the absence of a contraction. The US unemployment rate, which has recently improved the most in its history by falling to 3.6% — almost the lowest level in five decades — from a 2020 high of 14.7% is poised to reach 3.5% in the third quarter and remain low for several years. That would make the US the second-lowest in joblessness among the G-7 nations after Japan, according 50 economist forecasts compiled by Bloomberg.

Additionally, the economists put the probability of a recession at 30%, up from 15% at the end of January but not historically remarkable.

To be sure, no one knows how and when two of the biggest contributors to inflation — supply chain disruptions and commodities shortages aggravated by China’s economy-pinching Covid Zero strategy and Russia’s war in Ukraine — will end.