Barackface: 24: Jaishankar

The Economics of Stagflation, Part II What will follow the Trump shock? .................... Stagflation is a combination of inflation and high unemployment ......... · What it means for inflation to become entrenched in the economy: companies and workers raise their prices because they expect everyone else to do the same. ........ · Taming the inflation of the 1970s required extreme measures by the Federal Reserve, resulting in a severe period of stagflation in the US during 1979-1984, because inflation had become entrenched in the economy ............ In contrast, taming the post-Covid inflation of 2022 to 2024 did not require the same harsh medicine because inflation had not become entrenched in the economy. As a result, the Federal Reserve was able to bring inflation down without inflicting high unemployment on the economy. ........
Stagflation is very much on people’s minds again, for good reason. The Trump administration’s tariff and deportation policies are creating a significant inflationary shock.
They’re also imposing a significant drag on economic growth. Today, it’s likely that the United States would be heading into a recession under the weight of higher prices and slower growth if the economy weren’t being supported by a huge boom in AI-related investment. And this danger remains: if the AI boom goes bust, the odds are high that the US economy will be plunged into a recession. .................. Which scenario will it be this time? I don’t know. The Federal Reserve doesn’t know. Trump administration officials definitely don’t know.

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