Commentary
Stagflation, caused by high inflation, a stagnating economy, and rising unemployment, is one of the most difficult economic conditions to emerge from. The reality for the United States is that it may already be here.
The United States is no stranger to stagflation, though. For nearly a decade beginning in 1974, unemployment remained above 6 percent while prices increased by at least 5.7 percent every year. Several of those years saw the CPI inflation rate in double digits. In addition to causing widespread misery, stagflation is long-lasting and problematic for the government to fight.
If the economy grows too quickly, there’s a risk of inflation and rising prices. If the economy grows too slowly, there’s a risk of recession with rising unemployment. However, these two situations have relatively simple responses. The Federal Reserve generally raises interest rates while the government aims to reduce spending. To counteract a recession, the Fed lowers interest rates, and the government spends money to inject cash into the economy….
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