A former Obama economist warned the U.S. economy could experience a return to 1970s-style stagflation as the Federal Reserve combats inflation with rate hikes.
Jason Furman speaks during the National Association of Business Economics economic policy conference in Washington, D.C., Feb. 25, 2020., rising by 8.6%, much higher than economists expected. It marks the fastest pace of inflation since December 1981, underscoring just how strong inflationary pressures in the economy still are., which are forced to pay more for everyday necessities like food, gasoline and rent.
But the Fed's policies to hamper consumer demand and tame inflation are expected to slow the economy, with a growing number ofin the next two years. Goldman Sachs, Bank of America and Deutsche Bank have all raised the odds of a downturn in 2022 or 2023, and Fed Chairman Jerome Powell has conceded there's a real possibility of a recession.
Furman said that he expects central bankers to finish the year with interest rates near 4% as they race to catch up with inflation. But consumers shouldn't expect to see prices fall right away, he said. Rampant inflation has become a major political liability for President Biden ahead of the November midterm elections, during which Democrats are expected to lose their already razor-thin majorities. Surveys show Americans see inflation as the biggest problem facing the country. And many households blame Biden for the price spikes.
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