This Goldilocks Economy Has an End Date
Investors who thought stagflation was here to stay last year were wrong, and they’ll be wrong again if they count on inflation fading away for good.
A strong housing market isn’t compatible with lower inflation.
Photographer: David Paul Morris/BloombergThe spring of 2022 was rough for the US economy. Markets plunged while inflation spiked. “Stagflation” was the word of the day, and for a period of time, there was some merit to that outlook.
Both economic trends arose from the unique market dynamics caused by the pandemic, but getting a handle on them has been more difficult because measures of inflation lag behind changes in the growth outlook. Investors who last year thought stagflation was here to stay were wrong, and they’ll be wrong again if they count on Goldilocks sticking around. Growth and inflation will line up sooner or later, and it’s the growth data that provides a better signal for the trajectory of the economy.