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What happens when there’s slow economic growth and high inflation? Economists call that « stagflation, » and given the slowing growth in the first quarter of 2024 and the higher inflation in February and March, we may be reliving that ghastly economic phenomenon.
The new GDP numbers surprised most economists who had predicted higher growth than the rather anemic 1.6% growth the Commerce Department posted for the first quarter. Coupled with a much larger-than-expected 3.4% inflation rate for the quarter (compared to 1.8% in the final quarter of 2023), it appears that the Federal Reserve’s efforts to tame inflation have stalled.
Some analysts were still Pollyannish in their analysis.
“It would suggest some moderation in growth but still a solid economy,” said Michael Gapen, chief U.S. economist for Bank of America.
In the real world, flashing red lights and sirens are going off.
“It increases the chances of a harder landing,” said Constance L. Hunter, an economist at MacroPolicy Perspectives, a forecasting firm. “The inflation data was the surprise.”
That « harder landing » suggests a possible recession toward the end of the year. It’s not at all certain. Slow growth is still growth, and it would take several months of slowing indicators before serious consideration should be given to the possibility of a recession.
