stagflation. It's the latest buzzword you may be hearing
in markets. It's a mash up of the word
stagnation and inflation and describes an economy that's barely growing
or even shrinking, has high unemployment and rising prices
, stagflation is worse than a recession and is pretty
much a nightmare for governments and central banks because their
go to prescriptions don't work and could make things worse
. I think back to the 19 seventies when Opec
placed an oil embargo on the US, leading to
a supply shock and price surge half a century later
, is the U. S. Now headed for
stagflation. As the Fed carries out its campaign to
raise interest rates aggressively in order to bring down inflation
. That's what the Fed wants to avoid ideally it
gets rates to a point where demand and is still
strong job market slow enough to undercut inflation and if
the Fed does bring about a recession, policymakers will
have room to lower rates to get the economy moving
again. But ever higher rates increase, everyone's borrowing
costs and eventually lead to companies reducing expenses, which
means job cuts, europe and the UK maybe higher
risk of entering stagflation, partly because the recovery from
the pandemic was not as strong and partly because higher
rates won't do much to lower one of their biggest
sources of inflation. Energy prices which have climbed because
of Russia's war in Ukraine. This is buzzwords.
I'm Scarlett