The U.S. economy is at a mounting risk of spiraling into a 1970s-style stagflation crisis as the Ukraine-Russia war exacerbates already sky-high inflation, according to a new analysis.
, which lifted interest rates by a quarter-point in March and signaled at least six more, similarly sized increases this year, and the fallout from the Ukraine invasion, the outlook for the U.S. economy is growing bleaker.
"The economic fallout from the war and other external factors, such as the emergence of a new coronavirus variant , expose the U.S. to the growing risk of stagflation – low growth combined with high inflation," the analysis said. A telltale sign, and consequence, of stagflation is rising energy prices, according to many economists, who believe it occurs when a sudden increase in the cost of oil reduces an economy's productive capacity. For instance, in 1973, the Organization of Petroleum Exporting Countries imposed an embargo on oil supplies to the U.S. over its support for Israel.
Danielle DiMartino Booth, the CEO and chief strategist of Quill Intelligence and a former adviser to a Dallas Fed president, said stagflation "appears to be an imminent development." She cited dwindling economic growth forecasts for the first quarter as well as inflation for energy and food that is double what it was in the 1970s.
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