After three hot inflation reports to start the year and some disturbing signs of persistent price pressures in the first-quarter GDP report, some investors have begun to fear the U.S. could be headed for a repeat of the stagflationary 1970s. But Federal Reserve Chair Jerome Powell pushed back on that idea at the Federal Open Market Committee (FOMC) press conference on Wednesday.
“I was around for stagflation. And it was 10% unemployment, it was high-single-digits inflation … and very slow growth. Right now, we have 3% growth … and we have inflation running under 3%. So I don’t really understand where that’s coming from,” he told reporters, adding, “I don’t see the stag or the -flation, actually.”
To Powell’s point, although inflation came in ahead of Wall Street’s targets in each of the first three months of this year, the Fed’s favorite inflation gauge has remained below 3% the whole time. The core personal consumption expenditures (PCE) price index rose 2.8% from a year ago in March. That was in line with February’s figure, and still the lowest core PCE reading since April 2021.
At the same time, although first-quarter GDP growth came in below consensus estimates at 1.6%, rising imports compared with exports in the U.S. economy made the figure seem worse than it actually was—and underlying demand data remained strong. Private domestic demand, a measure of real final sales to domestic purchases that serves as a leading indicator for GDP growth, actually rose 3.1% in the first quarter.
Chair Powell also put his money where his mouth is, so to speak, and decided to hold interest rates steady at a range between 5.25% and 5.5% on Wednesday, despite the recent rise in inflation. Powell admitted that the latest data has shown “a lack of further progress” in reducing inflation to the Fed’s 2% goal, but reiterated he still believes that consumer prices will continue to fall in 2024. The Fed chair added that it’s “unlikely” his next move will be a rate hike.
“My personal forecast is that we will begin to see further progress on inflation this year. I don’t know that it will be sufficient [to cut interest rates]. I don’t know that it won’t. I think we’re gonna have to let the data lead us on that,” he told reporters.
Powell isn’t the only expert pushing back on the stagflation narrative. Ed Yardeni, a veteran Wall Street strategist who now runs Yardeni Research, told Fortune before Powell’s press conference Wednesday that the odds of U.S. stagflation are now 20% or less. A few weeks ago, when the conflict between Israel and Iranappeared to escalate, Yardeni feared that there was a small chance a second oil price shock (the first being the expansion of the Ukraine-Russia war in 2022) could lead to a stagflationary outcome for the economy.
After all, in the 1970s, multiple recessions plus two oil-price shocks sparking the so-called great inflation led to an era characterized by economic stagnation and high prices—giving birth to the term “stagflation.” Now, though, with tensions between oil-producing nations in the Middle East cooling, Yardeni said he is “clearly less worried about that.”
“We can’t even seem to get a 1970s scenario with a horrible situation in the Middle East. The price of oil is still remaining remarkably subdued—and that’s with Saudi Arabia, and Russia, involuntarily cutting back some of their production,” he noted.