Stagflation Looms as US Economy Shows Signs of Contraction
The US economy is showing signs of stagflation, with the Chicago Fed's National Activity Index dipping in August from July. This suggests that economic growth is no longer rising and may be contracting.
Chicago Fed President Austan Goolsbee warned that bringing inflation back down to 2% may not be painless and could require pushing employment below target. 'This is exactly the painful trade-off between employment and inflation that stagflationary shocks always impose on a central bank,' he said.
In other news, California has declared a state of emergency due to El Niño-related weather conditions, which are expected to bring damaging storms, widespread flooding, and mudslides. Canada's central bank boss also warned that trade difficulties with the US could cut Canadian growth in half to below 1%.
The copper price is making another push up towards its record high, driven by growing logistics issues. The UST 10yr yield has fallen to 4.96%, while gold and oil prices have eased.