3 Reasons Why Stagflation Just Became Your Biggest Worry

The macroeconomic environment is dictating the price movement in the crypto market. Crypto investors and traders are eyeing the Federal Reserve’s every move. Minnesota Fed President and CEO, Neel Kashkari, has given traders something new to worry about.  In his recent comments, Kashkari claims that the current economic crisis looks a lot like stagflation. 

Why Stagflation Can Be Worse Than Recession And Inflation

The current macro economy is unfavorable for the crypto market. Crypto is strongly correlated with the broader market and is currently showing sluggish movement. Soaring inflation levels have caused a massive selloff in the crypto market. Similarly, the Fed’s hawkish response has triggered recession warnings.

However, there are three reasons why stagflation is likely the worst possible outcome of the economic crisis. 

1. Stagflation combines the bad of both scenarios. It is a period of high inflation levels with slow growth and high unemployment. Key inflation data still points to record-high inflation levels. Similarly, initial jobless claims released today highlight spiking unemployment.
2. The central bank cannot come up with a proper solution to deal with stagflation. High inflation requires monetary tightening while slow growth requires quantitative easing. The US Fed is currently engaged in an aggressive tightening while the UK’s ECB has already pivoted. 
3. Thirdly, the way to tackle stagflation is to proactively avoid it. However, experts believe that stagflation is already here. NYU professor Nouriel Roubini states that stagflation is imminent. Julian Brigden, the co-founder of Macro Intelligence 2, states that the current economic condition is stagflation 101. 

Kashkari states that the current economic condition may well be a transition. However, all signs point to soaring prices during recession-like conditions. 

How The Fed Can Deal With This Crisis

Neel Kashkari does not believe that the Fed is done with raising interest rates. Despite the slow growth and rising unemployment, the Fed will continue with its aggressive policymaking. 

Egon von Greyerz of Matterhorn Asset Management believes that the Fed can either cause a systemic collapse due to tightening or weaken the US dollar by easing.

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