GDP - US Economy Faces 'Worst Of Both Worlds' As Stagflation Threat Looms Large | Benzinga
The latest GDP and inflation figures have sparked concerns among investors, hinting at a potential economic downturn worse than a recession.
What Happened: The U.S. economy’s first-quarter growth, at an annualized rate of 1.6%, fell significantly short of the anticipated 2.5%, according to the Bureau of Economic Analysis. This is also a decline from the 3.4% increase in the fourth quarter, reported Business Insider.
“This was a worst of both worlds report – slower than expected growth, higher than expected inflation,” wrote David Donabedian, chief investment officer of CIBC Private Wealth US.
Simultaneously, consumer prices experienced a more significant than expected surge, constraining the Federal Reserve‘s ability to take action. This combination of sluggish growth and rising prices is a classic indicator of stagflation, a scenario that is notoriously challenging to combat.
The last time the U.S. faced stagflation was in the 1970s, a period characterized by geopolitical tensions leading to an OPEC oil embargo and a subsequent surge in energy prices. This, combined with high government spending and the dollar’s detachment from gold, resulted in double-digit inflation and a tumbling economy.
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