JP Morgan issues new warning as US facing nightmare ’70s-style stagflation’

The economy risks being plunged back into 1970s-style stagflation scenario, with Americans facing rising food prices and surging unemployment, JPMorgan Chase strategists have warned.
It comes after U.S. stocks hit a new record high last week, but experts warn the upturn may not last for long, Fox Business reports.
Marko Kolanovic, the bank’s chief market strategist, says the economy could move from a so-called “Goldilocks” scenario – in which it isn’t growing or contracting significantly – to financial pressures of a bygone era.
“Going back to the question of market macro regime, we believe that there is a risk of the narrative turning back from Goldilocks towards something like 1970s stagflation, with significant implications for asset allocation,” Kolanovic in an analyst note to clients.
Stagflation is the name given to a combination of economic stagnation and high inflation, with soaring consumer prices as well as high levels of unemployment.
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The US economy was hammered by stagflation in the 1970s and early 1980s, with high budget deficits, lower interest rates, an oil embargo, and the collapse of managed currency rates contributing factors, according to Investopedia.
“There are many similarities to the current times,” the analysts said. “We already had one wave of inflation, and questions started to appear whether a second wave can be avoided if policies and geopolitical developments stay on this course.”
Fears that such an economic phase could strike again surged in 2022 as the Federal Reserve started hiking interest rates aggressively in a bid to tame raging inflation.
Those concerns receded last year, with signs that price pressures were ebbing away without a substantial impact on growth.
But there have been some recent signs of stalling progress on bringing down inflation.
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Consumer price index reports in both December and January came in higher than estimated, prompting fears that inflation could plateau at an abnormally high level.
Investors had been anticipating a series of aggressive cuts to interest rates this year, but those expectations were dampened by the hotter-than-expected inflation reports as well as cautious messaging from the Fed.
“Investors should be open-minded that there is a scenario in which rates need to stay higher for longer, and the Fed may need to tighten financial conditions,” said Kolanovic.
JPMorgan chief executive Jamie Dimon has also drew economic parallels between the 1970s and this year, such as massive government spending, large fiscal deficits, and changing trade flows.