Stagflation Warning Signs Emerge in US Economy
The US economy is showing warning signs of stagflation, according to Nigel Green, CEO of deVere Group. The latest Commerce Department data reveals that inflation-adjusted consumer spending was flat in July, a sharp slowdown from June's 0.4% gain.
Meanwhile, the Personal Consumption Expenditures (PCE) price index remained stuck at 3.7%, above the 3.6% economists had forecast. Core PCE, which strips out food and energy, came in at 3.3% annually.
Nigel Green warns that this combination of stalling growth and high inflation poses a difficult decision for the Federal Reserve ahead of its next rate decision on September 16th. 'A central bank can fight high inflation by raising rates, or it can support weakening growth by cutting them, but not both,' he says.
Green believes that markets are underestimating the severity of the situation and treating a potential hold in interest rates as caution rather than a sign of desperation.