'Stagflation' Alarm Bells Sound as US Economy Unexpectedly Shrinks in First Quarter


Last month, a former Obama administration economist predicted that without a sudden change in course from the Biden-era Federal Reserve, an economic monster known as stagflation last seen in the 1970s was about to rise from the depths.

On Thursday, a new report triggered alarm bells that this was already coming to pass.

Stagflation is defined as a period in which there is high inflation and high unemployment because the economy is shrinking. America in March had 8.5 percent inflation, the highest rate since 1981.

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On Thursday, Commerce Department data said the shrinkage could have already begun, reporting that America’s gross domestic product declined at an annualized pace of 1.4 percent in the first quarter, according to CNBC.

The decline was a stark swing from the 1 percent gain that had been forecast.

As noted by Axios, which said the data gave off a “distinct whiff of stagflation,” this was the first shrinkage since the arrival of the pandemic triggered massive lockdowns.

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In March, Lawrence Summers, an economist who advised former President Barack Obama, issued a warning in an Op-Ed published in The Washington Post.

At the time, he said mocked Federal Reserve efforts to curb inflation by writing, “Anything is possible, and wishful thinking can sometimes prove self-fulfilling.”

Then he took a serious tone.

“The Fed’s current policy trajectory is likely to lead to stagflation, with average unemployment and inflation both averaging over 5 percent over the next few years — and ultimately to a major recession,” he said.

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Economists and other commentators shared their alarm over the new data.

Along with the new data came a World Bank report saying that high inflation is expected to keep food and energy costs elevated until 2024, according to Fox Business.

The World Bank predicts energy prices will rise by 50 percent this year.

“This amounts to the largest commodity shock we’ve experienced since the 1970s. As was the case then, the shock is being aggravated by a surge in restrictions in trade of food, fuel and fertilizers,” said Indermit Gill, a World Bank vice president. “These developments have started to raise the specter of stagflation.”

This article appeared originally on The Western Journal.

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