Anybody thought about stagflation risks?

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ANYBODY THOUGHT ABOUT STAGFLATION RISKS? (0953 GMT)

Almost nobody is talking about it, but stagflation would be among the worst possible scenarios for risk sentiment, as it would probably involve rising interest rates coupled with a lack of economic growth.

It could happen if the so-called supply bottlenecks dampen the recovery and boost inflation and inflation expectations.

According to Moody’s economists, “the debate about stagflation is going to intensify over the next few months as growth in consumer prices continues to accelerate.”

But they also reassure investors that “the U.S. is not currently experiencing stagflation, and it’s not going to over the next couple of years.”

In the early 1980s, the Fed crushed inflation by pushing interest rates into the double digits and causing the economy to suffer severe double-dip recessions.

“The Fed has learned its lesson, and it has all the tools to address this period if transitory inflation proves to be something else. The risks of stagflation are low,” they add.

Profit margins remain solid, and businesses can “absorb some of the price pressures that have developed because of rising commodity prices and global supply-chain issues.”