Growing Data Indicates A Terrible Future For The American Economy

American Economy

Stagflation is creeping into the American economy as growth slows and typical American prices keep rising, analysts told the Daily Caller News Foundation.

The United States’ annual economic growth in the first quarter of 2024 was only 1.6%, as a result of a report in March that showed year-over-year inflation to be 3.5%.
Stagflation, which caused havoc on American consumers throughout the 1970s, has been linked to poor growth and high inflation, as well as persistently high levels of government expenditure and debt, according to experts who spoke with the DCNF.

E.J. Antoni, a research fellow at the Grover M. Hermann Center for the Federal Budget at the Heritage Foundation, told the DCNF that “it’s not so much that we risk stagflation as we’re already there.” “By borrowing from the future, we have essentially accelerated trillions of dollars’ worth of economic growth, but eventually, that debt must be paid back. Furthermore, it is incredibly inefficient.

According to Investopedia, stagflation is a rare economic situation characterized by slow growth, high unemployment, and increased inflation. It is particularly challenging to treat because finding a solution for one problem often makes the others worse. The most famous instance of stagflation took place following an oil crisis in the 1970s.

According to the Treasury Department, the United States’ national debt surpassed $34 trillion for the first time at the beginning of 2024 and is currently close to $34.6 trillion. Since President Joe Biden took office in January 2021, there has been an approximate $6.8 billion increase in the national debt.

The America First Policy Institute’s head economist, Michael Faulkender, told the DCNF that stagflation was an inevitable outcome of Bidenomics. “You get reductions in growth with higher prices when you massively increase spending, whether it be on student loan forgiveness or green subsidies, while at the same time reducing the economy’s ability to produce due to all the regulatory restrictions being imposed.” Stagflation is something we should anticipate if Bidenomics persists.

With the signing of the $1.2 trillion Bipartisan Infrastructure Law in November 2021 and the $1.9 trillion American Rescue Plan in March 2021, Biden has integrated large-scale spending initiatives into his larger platform. In August 2022, the president also signed the Inflation Reduction Act, which authorized an additional $750 billion in spending, $370 billion of which was allocated to green initiatives aimed at addressing climate change.

Through a variety of loan cancellations and interest suspensions, the Biden administration’s most recent plan to forgive student loans is expected to cost $559 billion over the course of the following ten years. The Supreme Court invalidated one of the president’s earlier, more expensive plans to cancel student loans in June 2023.

Research fellow Jai Kedia of the Cato Institute’s Center for Monetary and Financial Alternatives advised the DCNF against believing the United States was experiencing stagflation because the condition is typically accompanied by significant supply shocks.

Kedia told the DCNF, “The news is not good on both fronts, output and inflation, but there is no reason to believe that this one report will cause stagflation.” “The U.S. economy had very distinct features in the 1970s and early 1980s when stagflation last happened. Severe wage inflation and strong wage contracting at unsustainable high levels, especially due to labor union bargaining, characterized the era. Since pay increases were not the consequence of increased productivity, businesses passed those labor expenses on to consumers, which led to inflation and slow economic growth. It is (ideally) improbable that such particular circumstance will arise again.

In the third and fourth quarters of 2023, the gross domestic product increased to 3.4% and 4.9%, respectively, despite recent low growth figures. Significant gains from government spending were factored into the economic growth predictions for those quarters.

Following the release of the GDP data on Thursday, the White House released a statement saying, “Today’s report shows the American economy remains strong, with continued steady and stable growth.” “Since I took office, the economy has expanded more than at any other point in the last 25 years of presidential terms, with growth of 3% in the last year alone,” the statement reads. “Unemployment has remained below 4% for over two years.” However, we still have work to do. Working families cannot afford the costs, therefore I am pushing to bring them down.

The United States has continued to see strong top-line job growth. In March, the country added 303,000 nonfarm payroll posts, with an unemployment rate of 3.9%, following the addition of 275,000 positions in February. Even with continuous increase, government employment and part-time work have accounted for the majority of advances.

“Severe supply shocks typically result in high inflation and low output,” Kedia informed the DCNF. “It’s generally advisable to avoid making extreme monetary policy decisions based on such shocks, as the Fed has little influence over them. It is unclear if output has decreased as a result of supply restrictions, whether rising borrowing prices have finally caused individuals to cut down on their spending, or whether this was just a noisy data observation. It is too early to know if such a shock has occurred over the past month.

The Federal Reserve has already increased the federal funds rate to a range of 5.25% and 5.50%, the highest level in 23 years, with the most recent hike being in July 2023, in an attempt to slow the rate of inflation. The majority of Fed governors maintained their December estimate—that there would be three rate decreases by the end of 2024—at the FOMC’s most recent meeting in March.

“Aside from the evident political motivation, there is absolutely no reason for the Fed to cut rates this year,” Antoni informed the DCNF. Remember that the Fed was implementing “quantitative tightening,” which involved rising interest rates and shrinking the balance sheet, during the first three years of the Trump administration. Fears of inflation and the rapidly expanding labor market served as justifications for tighter monetary policy. According to the Fed’s own calculations, those indications now appear even worse: official government data show that employment growth has accelerated, and inflation is still well above the 2.0% objective with entirely unanchored inflation expectations. Rather than lowering rates, they ought to be discussing raising them.

According to CME Group’s FedWatch Tool, most investors now believe that there won’t be a rate reduction until the FOMC’s September meeting because inflation is still high.

Business executives are wary of the current status of the economy. Jamie Dimon, the CEO of JPMorgan Chase, stated on Friday that while he is optimistic that the United States can control inflation and sustain growth, he is concerned about the risk of stagflation, as reported by The Associated Press.

Unfortunately, Antoni told the DCNF, “the signs have been pointing to stagflation for quite some time because the excessive government spending that created this issue isn’t letting up.”

The DCNF was referred to earlier remarks by the White House.

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Mounting Evidence Is Pointing To A Nightmare Scenario For The U.S. Economy (msn.com)