FORECASTS & TRENDS E-LETTER
By Phil Denney
May 14, 2024

IN THIS ISSUE:

1.  Stagflation!

2.  Scams Cost Seniors $3.4B

Get used to hearing the term stagflation because this word is going to get thrown around a lot in the financial press. At Jerome Powell’s press conference on May 1, 2024, Powell downplayed concerns that the economy may be sliding into a period of "stagflation," which is marked by slow growth and stubbornly high inflation. Powell noted he was "around" for such a period in the 1970s and he dismissed any similarities in today's economy.

"I don't see the 'stag' or the 'flation,'" he said.

But are Powell and some economists too quick to downplay the chance of that the U.S. will experience slowing economic momentum with sticky inflation? We’ll take a look at that possibility today, followed by a warning to be wary of scams targeting seniors.

Stagflation!

According to Investopedia, stagflation is an economic cycle characterized by slow?growth?and a high unemployment rate accompanied by inflation. Economic policymakers find this combination particularly difficult to handle, as attempting to correct one of the factors can exacerbate another.

The term stagflation was first used by British politician Iain Macleod in a speech before the House of Commons in 1965, a time of economic stress in the United Kingdom. He called the combined effects of inflation and stagnation a "stagflation situation."

The term was revived in the U.S. during the 1970s oil crisis, which caused a recession that included five consecutive quarters of negative GDP growth. Inflation doubled in 1973 and hit double digits in 1974. Unemployment reached 9% by May 1975. I remember it because that is when I graduated from the University of Akron. Fortunately, that is also when I started my U.S. Army career. I had a job.

What causes stagflation? In general, the stage is set for stagflation when a supply shock occurs. This is an unexpected event, such as a disruption in the oil supply or a shortage of essential parts. Such a shock occurred during the COVID-19 pandemic with a disruption of the flow of semiconductors that slowed the production of everything from laptops to cars and appliances.

What Is the Cure for Stagflation? There is no definitive cure for stagflation. The consensus among economists is that productivity must be increased to the point where it will lead to higher growth without additional inflation. This would then allow for the tightening of monetary policy to rein in the inflation component of stagflation.

That is easier said than done, so the key to preventing stagflation is for economic policymakers to be extremely proactive in avoiding it.

Elisabeth Buchwald at CNN published an interesting article called Fears about stagflation are mounting in the US. It’s every central banker’s worst nightmare. For the past few years, the US economy has been growing at a pace that seemed too good to be true. The most recent gross domestic product report shows the US economy grew at an annualized rate of 1.6% in the first quarter of this year versus the 3.4% rate in the fourth quarter of last year. This seems to be just the medicine the Federal Reserve doctors ordered! But there’s just one problem: inflation.

The latest Consumer Price Index data shows inflation is rising, moving further away from the Fed’s 2% target. The latest data showed prices ticked up to a 3.4% annualized rate in the first quarter compared to 1.8% in the last quarter of 2023. Uh oh! Is stagflation just around the corner? It is a good article, please read it.

Not to be outdone by CNN, Fox Business also released an article Stagflation fears come back with a vengeance by Megan Henney.

A string of inflation reports during the first three months of 2024 all came in above estimates, fueling fears that inflation could prove more difficult to conquer than previously believed. On top of that, economic growth during the first quarter unexpectedly faltered, rising at an annualized pace of just 1.6% – the slowest rate since 2022.

"This was a worst of both worlds report: slower than expected growth, higher than expected inflation," said David Donabedian, chief investment officer of CIBC Private Wealth US, of the latest GDP data. "The biggest setback is the acceleration in core inflation, and in particular, the services sector rising above a 5% annual rate."

Henney writes that the “combination of economic stagnation and high inflation… is regarded as a worst-case outcome for the Federal Reserve.”

I recommend you read her article too. Both articles are a good read. By the way, don’t speculate on an interest rate cut this year.

Scams Cost Seniors $3.4B

I know friends who were victims of identity theft. It is beyond painful to experience it. These scammers are so smart, I just wish they would turn their attention to finding a cure for cancer instead.

I found the following information on LinkedIn News: “Fraud schemes targeting people over 60 happened at a record rate in 2023 and accounted for reported losses of $3.4 billion, an 11% increase over the previous year, according to a new FBI report. The scams ranged from tech support impersonators, fake investments, identity theft, extortion cases and romantic fraudsters. More than 100,000 elderly victims lost an average of $33,915 in 2023, and roughly 6,000 of them lost more than $100,000 each. But AARP says the vast majority of elder scams aren't reported, and it estimates losses are more than eight times higher — $28.3 billion — annually.”

To avoid scams, here are some security tips:

• Consider upping your privacy settings on social media to avoid imposter scams.
• Beware of unsolicited texts. Don't open file attachments in emails from businesses or people you don’t trust. Don’t respond to an email/text from Microsoft Windows that your account is blocked!
• Get used to not engaging. You don't have to respond to calls, emails or texts that are unfamiliar to you, especially since there's a high likelihood that they're fraudulent.
• Keep tabs on your credit report, streamline the cards and information in your wallet, and set up biometric identification on your smartphone to deter thieves.

Words of Wisdom: Wealth must be handled wisely to keep it from being destructive. Do not withhold good from those to whom it is due, when it is in your power to act.

Thanks for reading,

 

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