It’s 1937 All Over Again: Weak GDP, Soaring Inflation, and the Fed Hiking

The US economy continues to implode as inflation ignites.

GDP Now has collapsed from 3.4% in early February to 1.3% today. It will be revised even lower based on the awful deficit numbers (the US trade deficit hit a five year high in January).

gdpnow-forecast-evolution

Meanwhile, inflation is soaring.

The Fed tracks FOUR inflation metrics. They are Core CPI, Core PCE, Trimmed Mean CPI and Cleveland Median CPI.

Roughly all four are now at or above the Fed’s so-called “target” of 2%.

  • Core CPI is growing at an annualized rate of 2.1%.
  • Cleveland Median CPI is growing at an annualized rate of 2.2%.
  • Trimmed Mean CPI is growing at an annualized rate of 2.1%
  • Only Core PCE is just below the Fed’s target rate at 1.9%.

Weak economic growth and soaring inflation… there’s a word for that… it’s called STAG-flation.

The Fed is going to repeat its 1937 mistake of hiking rates into a weak economy. Now, like then. CPI is soaring while GDP growth flatlined.

Inflation soaring.

Year % Change in Avg CPI Year over Year
1929 0.00%
1930 -2.30%
1931 -9.00%
1932 -9.90%
1933 -5.10%
1934 3.10%
1935 2.20%
1936 1.50%
1937 3.60%
1938 -2.10%

GDP flatlining.

2

The Fed aggressively hiked into this mess. The outcome?

The US plunged into recession and stocks nearly halved.

fredgraph

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Best Regards
Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

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