“Stagblation” is Bogeyman, commenting on the Federal Reserve meeting this week: “This is the interlocking web in which they are.”
When federal reserve officials met last time inLate JanuaryThings look good: employmentBe. The economy has just grown inSolid frequencyIn the last quarter of last year. And inflation, whilestubborn,It fell sharply from its peak more than two years ago.
What is the seven -week difference.
With the Federal Reserve’s willingness to meet on Tuesday and Wednesday, the central bank and its president, Jerome Powell, are likely to turn to a tougher place. Economic inflationLast month improvedBut it is still high andDefinitionsIt can push it up. At the same time, the threats of continuous tariffs as well as the sharp cuts of government spendingAnd jobsThey have been associatedconsumerAnd the trust of work, which can affect the economy and even raise unemployment.
The toxic mixture of high inflation and weak or stagnant economy is often referred to as “”Recession“The term chasing central bankers. This is what disturbed the United States in the 1970s, when it did not kill the deep inflation.
The recession, if it appears, is difficult for the Federal Reserve because policy makers usually raise rates – or keep them high – to combat inflation. However, if unemployment also rises, the Federal Reserve usually reduces rates to reduce borrowing costs and raise growth.
It is not clear after the economy drowns in stagnation. Currently, such as companies and consumers, the Federal Reserve is fighting with aA great amount of uncertaintySurrounding economic expectations. But even a moderate version – with unemployment from its current low level of 4.1 %, while inflation remained stuck over the goal of the Federal Reserve by 2 % – will be a challenge for the central bank.
“This is the interlocking network in which they are,” said Esther George, the former head of the Kansas City branch in the Federal Reserve. “You have inflation on the one hand. At the same time, you are trying to look at the effect that can happen in the labor market, if the growth begins to decline. So it is a difficult scenario for them for sure.”
Federal Reserve officials will surely maintain their main rate without changing their meeting this week. Once the meeting ended on Wednesday, they will issue the latest quarterly economic expectations, which are likely to show that they expect to reduce their average twice this year – as expected in December.
The Federal Reserve implemented three discounts last year and then indicatedAt the January meetingThey were largely to stop until economic expectations became more clear.
Wall Street investors expect three price discounts this year, in June, September and December, according to the price contracts they follow.CME FedwatchPartially because they are concerned that the economic slowdown will force more discounts.
One of the developments that is likely to spoil federal reserve officials is the sharp jump in inflation expectations this month at the University of MichiganConsumer morale scan. It has shown the largest increase in the long -term inflation expectations since 1993.
Such expectations-which measure whether the Americans are worried about inflation-the important thing because they can become a self-investigation. If companies and consumers expect higher costs, they may take steps that increase inflation, such as claiming higher wages, which in turn can force companies to raise prices to compensate for the high costs of employment.
Some economists warn that the Michigan University surveying or now based on only about 400 responses. (The final version that will be released later this month includes about 800.) The financial market measures for inflation expectations, based on bond prices, have already decreased in recent weeks.
The latest inflation readings have been mixed. Consumer price indexLast weekFor the first time in five months to 2.8 % of 3 %, which is a fan change. But it is likely that the FBI’s favorite price scale, which will be released later this month, is unchanged.
The jump in inflation expectations is also a problem for the Federal Reserve because officials, including Powell, said they are ready to allow inflation to gradually return to their 2 % goal in 2027, because expectations were generally low. If other measures show that there are fears of inflation, the Federal Reserve may have more pressure to get inflation more quickly.
“I am worried when I see consumer expectations move in the opposite direction,” George said. “I think you just have to watch it.”
The last time President Donald Trump imposed a customs tariff – in 2018 and 2019 – inflation did not increase in general much, partly due to the fact that it was not widely as it is currently proposing it and some duties, such as those in steel and aluminum, which were diluted with gaps. Now that the Americans have lived through a painful hoody episode, they are likely to be more volatile about high prices.
Powell pointed to such concerns about notes earlier this month. He said that the definitions can have a single time effect on prices without causing constant inflation. But this may change “if it turns into a series” from the high customs tariff, he said 7 March, or “if the increases are greater, this is important.”
“What really matters is what happens with long -term inflation expectations,” he added.
A week after his comments, these expectations were filmed in the Michigan University survey.
This story was originally shown on Fortune.com
