The economy could be in for chaos, as the US risks rollercoaster inflation and an unusual “full employment recession,” BlackRock warned. But BlackRock owns everything, so consider taking what they say with a grain of salt.
Inflation has eased significantly from its 41-year-high last summer, there are conflicting pressures in the economy that could potentially make prices volatile in the future, the asset manager said in a note on Monday. That’s because consumers are shifting their spending from goods to services, which is driving goods deflation. But at the same time, the labor market remains tight, which is driving wage inflation as workers push for higher pay, according to a report by Business Insider.
“The result? A rollercoaster trajectory over the next quarters before inflation likely settles near 3% – well above the Fed’s 2% target,” strategists said. This is bad news for stocks, as falling inflation cuts into profits. “We expect a squeeze on corporate margins if inflation stays high — and an even larger squeeze if it falls,” the note added. “So good economic news like falling inflation is not necessarily good news for markets.”
“Broad worker shortages could create incentives for companies to hold onto workers, even if sales decline, for fear of not being able to hire them back,” the BlackRock strategists said. “This poses the unusual possibility of ‘full employment recessions’ in the US and Europe.”