DE | U.S. and Global Economiesand Markets | Here-and-Now—Superstrong Economy and Red Hot Inflation – 3/16/22

Posted March 16, 2022 by rvillareal

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Here-and-Now—Superstrong Economy and Red Hot Inflation
But Ahead? Russia/Ukraine-War Shock
“Stagflation” Risk and the Fed

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A superstrong labor market (Feb.; release, Mar. 4) and accelerating CPI inflation (Feb.; release Mar. 10) underscored a “Hot” U.S. Economy, “Red Hot” Inflation and “Hot” Labor Market—a “Boomy Expansion,” if not a Boom, that has emerged.

Why the “Heat” in the Here-and-Now?
1) The fading of COVID-19; 2) Pentup Demands of consumers; 3) strong financial positions for Households and Nonfinancial Corporations; 4) a solid and resilient financial system, especially Banks; 5) lagged effects from a long period of Ultra-Easy Monetary Policy and unprecedented massive Fiscal Stimulus; and 6) the internal dynamics of a strong business cycle upswing.

At a 3.8% Unemployment Rate and CPI inflation over the past year having accelerated from 2.7% YoY to 7.9%, the Federal Reserve’s Dual Objective—Price Stability and Full Employment—appears not only to have been reached, but surpassed.

This is “Good News” for the United States and for “Main Street.”
The economy is strong, the unemployment rate low, there are many more Jobs Openings (11.3 million, JOLTS Survey, Mar. 9) than available labor, nominal disposable income and wages are rising, consumers have considerable savings, businesses’ cash flow far exceeds outlays with lots of room for increased spending, and states and localities tax revenues are surprisingly strong because of double-digit growth in Nominal GDP.

But What About Ahead?
For “Wall St.” the “Good News” for Main Street sows some seeds of “Bad News,” particularly the sharp acceleration of price inflation and essentially full employment unemployment rate at 3.8%, with inflation far above the average 2% price inflation target of the Federal Reserve now a big problem for the central bank. This all spells rising interest rates for a long time, a “Wall St.” game-changer.