According to Stephen Roach, former chairman of Morgan Stanley Asia, stagflation is making a comeback.
He warned that the US is on a dangerous path that leads to higher prices coupled with slower growth.
“This inflation problem is widespread, persistent and likely to last for a long time,” Roach told CNBC.fast moneyon Thursday. [Fed chief] Jerome Powell is in now.”
Roach, a Yale University senior fellow and former Federal Reserve economist, calls stagflation his base case and the extreme inflation debate absurd.
“The demand side has really turned away from the Fed,” he said. “The Fed has a huge amount of tightening to do.”
roach hopes inflation To remain above 5% by the end of the year. At the current pace of raising interest rates, the Fed will not meet that level.
“50 basis points doesn’t cut it. And, by ruling out anything bigger than that, he [Powell] Just sends a signal that its hands are tied,” Roach said. “Markets are uncomfortable with that conclusion.”
doe is on pace For your eighth negative week for the first time since 1932 S&P 500 and tech-heavy Nasdaq Tracking their worst weekly losing streak since 2001.
Roach began sounding the alarm over the inflation risks of the 1970s two years agothe early stages of the epidemic, He listed historically low interest rates, the Fed’s easy money policies, and the country’s enormous debt.
His warning intensified for the last time September on CNBC, Roach cautioned that the US is a supply chain mess that is far from stagflation.
And now he sees more reasons to be cautious.
“I would associate that zero-Covid in China with the outcome of the war in Ukraine,” Roach said. “This will keep the supply side well extended in terms of preventing price discovery over the course of the next several years.”
CNBC’s Chris Hayes contributed to this report.