WHAT DOES STAGFLATION LOOK LIKE?
Starting with the “flation” part of the word stagflation, we see energy prices continuing to move out of reach with the average national price for regular gas hitting $5.00 in June (+60.9% y/y for the month). At the same time, rents are up +5% during the month which may hurt consumers more than gas prices because of the actual dollar amount increase.
Now for the “stag” part of stagflation, we see the current 2Q22 Atlanta Fed GDP forecast down -1.9% on top of -1.6% 1Q22 results (revised down from -1.4%). Further, the Fed’s recent rate hike is having its intended consequences as the job market starts to cool.
Notably, the 10-year treasury reached 3.49% on 6/14 which was the highest level since 2011, although it has settled to around 3% as the recession fears of bond investors outweigh concerns about the possibility of more Fed rate hikes. Some think that the recent rise in equities suggests that the market is already looking for the Fed to start cutting rates to fight the recession.