What Is Stagflation Ep 94

If you’ve been following the news, you may have started hearing the term “stagflation” being tossed around, so I thought I’d share what it is and tease this concept out. We haven’t had to consider this term since the 1970s, and back then the average Baby Boomer was just getting out of school and entering the workforce. 

The lexicon definition is, “persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.” The good news is we don’t have it yet, but market analysts are beginning to warn of the possibility of stagflation happening.   

Here is a practical example of how it may become a problem. Denmark has warned that their economy may be impacted by stagflation if Russian oil imports were to end. This would theoretically cause oil prices to be inflated, productivity would slow, and jobs may go away. “The crisis will not pull the rug from underneath the Danish economy, but Russia’s brutal invasion of Ukraine will take a toll on growth,” the Danish Finance Minister Nicolai Wammen said according to Bloomberg News.

The challenge is to tame inflation and in America, the government needs to raise interest rates. We saw a small 0.25% increase last week, but at least one Federal Reserve governor is saying that wasn’t enough. Jerome Powell, the head of the Fed has said the government may raise rates six times this year, but James Bullard, who is on the board of the Federal Reserve, says it’s not enough. Bullard says the government should be looking at raising rates twelve times this year.

But here’s the problem. If interest rates move too quickly, it will slow economic output. Raising rates may be one of the few things the government can do, so how does this apply to you? Market Watch had a recent article that opened with, “Rising stagflation risks in the U.S. and Europe are raising the possibility of a ‘lost decade’ for the 60/40 portfolio mix of stocks and bonds, historically seen as a reliable investing choice for those with moderate risk appetites.”

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Clients Excel, LLC are not affiliated companies. Investing involves risk, including potential loss of principal. Any references to protection, safety, or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the insuring carrier. This podcast is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet particular needs of an individual’s situation. Clients Excel is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Clients Excel. The use of logos and/or trademarks of podcast hosting sites are the property of their respective owners and are not an endorsement by those owners of our firm or our program.