‘Markets are not even close to full discounts’

According to Stephen Roach, a well-known former Federal Reserve economist, the combination of high inflation and slow growth is driving the United States to stagnation.

It’s the same toxic mixture that plagued the United States in the 1970s.

During periods of stagnation the economy can only grow and face high unemployment when people face high prices.

“This inflation problem is widespread, it is likely to be permanent and prolonged,” said Roach, now a senior fellow at Yale University’s Jackson Institute for Global Affairs, on CNBC earlier this week.

According to the Bureau of Labor Statistics, inflation has been steadily rising since last year and has been above 8% per annum for the past two months. Although it fell to 8.3% in April from 8.5% in March, inflation was higher than many economists expected.

To address the problem, the Fed announced at its meeting earlier this month that it would raise interest rates by half a percentage point, including two interest rates that have not been raised since 2000. Fed Chairman Jerome Powell was confirmed for a second term last week and announced he was committed to reducing inflation.

“What we need to see is that inflation is declining in a clear and credible way,” Powell said. The Wall Street Journal Conference this week. “And we’ll keep pushing until we get to see it.”

But the Fed’s move may not be enough to tackle the inflation problem, Roach told CNBC, especially since Powell said earlier this month that the central bank was not considering raising rates above 0.5%.

ā€¯Cancels [a rate hike] He is bigger than her [Powell] Just sends a signal that his hands are tied, “Roach said.” Markets are uncomfortable with this conclusion. “

It was a rough few weeks for the stock market with concerns over inflation, the war in Ukraine, and the possibility of further Fed rate hikes weighing on the market. On Friday, the three main indices, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq, were down 3.5% on the way to the end of the week, extending losses for several weeks. The S&P 500 and Nasdaq were on the verge of losing their seventh consecutive weekly loss, while Dow was looking at its eighth consecutive weekly loss, which has not happened since 1932. The Wall Street Journal.

Still, we may not be close to the bottom of the market, Roach said.

“Markets are not even close to giving the full amount they need to control the demand side,” Roach said.

This story was originally shown on Fortune.com

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