Top economist warns conditions are ripe for 1970s-style ‘stagflation’

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The chief economic adviser at financial services firm Allianz warned that the new coronavirus variant could rock Omicron markets, exacerbate supply chain woes, add to the pressure of record-high inflation – and possibly in the style of the 1970s “Stagflation” may result.

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The economist Mohamed al-Arian was asked “Granthshala News Sunday” Host Trace Gallagher spoke on Friday about the Dow dropping 900 points on fears of a new version and market uncertainty over the prospect of more lockdowns and travel restrictions.

“Yeah. So – and this world is happening. Marketplace is worried about two things: One, that yet another variant of COVID is going to hit them hard. We travel less. We go to restaurants less, And there may be additional restrictions on us. This is issue number one,” he said.


“And issue number two, the market is also concerned that this will lead to more inflation, further disrupting the supply chain,” El-Erian said. “Those two things together: low growth, high inflation, and that’s what the market is worried about right now.”

Former President Jimmy Carter struggled to curb stagflation – caused by high energy prices due to Arab oil embargoes, low economic growth and rising unemployment – which eventually made him a one-term president.

“The lower the growth, the higher is the inflation rate,” Mohamed El-Arian explained.
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El-Erian met with Jerome Powell, whom Biden said last week he would nominate the Federal Reserve for a second term, making inflation a top priority.

“I think it’s time for a change in policy at the Fed, and my view was that it might be easier with someone who hasn’t repeatedly reiterated that inflation is transient, don’t worry about it, it going away,” he said.

“I don’t think inflation is transitory and it’s really important for the Fed to realize that, because the worst thing that can happen is a supply disruption that they can’t do anything about, other than a labor shortage, They destabilize our expectations and we change behavior even more rapidly,” he said.

Jerome Powell.
Mohamed El-Arian called on Federal Reserve Chairman Jerome Powell to make controlling inflation a top priority.
Kevin Dietch / Getty Images

“Companies raise prices too quickly, wage earners insist on higher wages, and next thing you know, you’ve got a cycle of inflation. That’s what we need to avoid,” he said.

El-Erian cautioned that if the supply chain continues, they could “contaminate” demand.

“I don’t think we have a problem with demand. I think earnings are strong, retail sales are strong. Companies have a lot of money,” he said. “The problem is the supply side. And unless we fix the supply side, it will corrupt the demand side. So, it’s really important to focus on our two big issues. Supply disruption and inflation. ,


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