Stagflation is making a comeback, in line with former Morgan Stanley Asia chairman Stephen Roach.
He warns the U.S. is on a dangerous path that results in higher prices coupled with slower growth.
“This inflation problem is widespread, it’s persistent and more likely to be protracted,” Roach told CNBC’s “Fast Money” on Thursday. “The markets should not even near discounting the complete extent of what is going on to be required to bring the demand side under control… That just underscores the deep hole [Fed chief] Jerome Powell is in at once.”
Roach, a Yale University senior fellow and former Federal Reserve economist, calls stagflation his base case and the height inflation debate absurd.
“The demand side has really gotten away from the Fed,” he said. “The Fed has a large amount of tightening to do.”
Roach expects inflation to remain above 5% through the tip of the yr. At the present pace of rate of interest hikes, the Fed would not meet that level.
“50 basis points doesn’t cut it. And, by ruling out something larger than that he [Powell] just sends a signal that his hands are tied,” added Roach. “The markets are uncomfortable with that conclusion.”
The Dow is on pace for its eighth negative week in a row for the primary time since 1932. The S&P 500 and the tech-heavy Nasdaq are tracking for his or her worst weekly losing streaks since 2001.
Roach began sounding the alarm on Nineteen Seventies-type inflation risks two years ago, through the early stages of the pandemic. He listed historically low rates of interest, the Fed’s easy money policies and the country’s enormous debt.
His warning got louder last September on CNBC. Roach cautioned the U.S. was one supply chain glitch away from stagflation.
And now he sees much more reasons to go on alert.
“I might add to that zero-Covid in China together with the repercussions of the war within the Ukraine,” Roach said. “That can keep the provision side well-extended by way of clogging price discovery through the subsequent several years.”
CNBC’s Chris Hayes contributed to this report.