Now for the bad news: Decades later, talk of stagflation is back.
Meanwhile, economists have been downgrading predictions for economic growth as they assess the impact of the highly contagious Delta variant of the coronavirus, which arrives as some stimulus measures start to wind down.
A prolonged period of stagflation is still not the baseline assumption among economists and Wall Street investors.
“Is that a permanent state, or is [it] more related to frictions around reopening? I think most of it is temporary,” Neil Shearing, group chief economist at Capital Economics, told me.
But there is reason to pay close attention to what’s unfolding. Although the Federal Reserve also maintains that recent inflation is transitory, and will pass once post-pandemic supply chain pressures and labor market disruptions ease, consumers are exhibiting growing anxiety.
Last week, the Federal Reserve Bank of New York released its latest survey of consumer expectations. It found that inflation expectations for the year ahead were at a record high, as were those at the three-year horizon. The data goes back to 2013.
Breaking it down: Economists closely watch inflation expectations because they could encourage workers to demand higher wages. If consumers are paid more, their purchasing power grows, and businesses may hike prices again — starting the entire cycle anew.
In a recent note to clients, Bank of America strategists Ohsung Kwon and Savita Subramanian also flagged concerns about energy prices. The 1973 oil crisis is widely seen as having exacerbated inflation problems.
“Although not our base case, stagflation has often been accompanied by oil shocks, and with crude prices recently jumping on supply chain disruptions, the risk of oil shocks has increased,” Kwon and Subramanian said.
What happens next: The economy is showing some signs of resilience in the face of the Delta variant. But Kwon and Subramanian are advising clients to consider stocks with healthy dividends and shares of smaller companies that are more protected from inflation.
Those in charge of managing the economy, meanwhile, must weigh a complex matrix of factors. Officials at the Federal Reserve and the Bank of England, who will meet this week, have to decide whether to stick to their assessment that the problem is fleeting.
That would allow them to start pulling back crisis-era support in an orderly fashion. But as stagflation chatter grows, these decisions won’t be easy.
“It’s going to be an uncomfortable few months for central banks,” Shearing said.
Catch up on the WSJ’s blockbuster Facebook investigation
There’s a lot to unpack from the Journal’s investigation. But one thing that stands out is just how blatantly Facebook’s problems are documented, using simple, observational prose not often found in internal communications at multinational corporations, my CNN Business colleague Allison Morrow writes.
“We make body image issues worse for one in three teen girls,” said one slide from 2019, according to the WSJ. Another reads: “Teens blame Instagram for increases in the rate of anxiety and depression … This reaction was unprompted and consistent across all groups.”
“We are not actually doing what we say we do publicly,” the review said, according to the paper. “Unlike the rest of our community, these people” — those on the whitelist — “can violate our standards without any consequences.”
A team of data scientists put it bluntly: “Misinformation, toxicity and violent content are inordinately prevalent among reshares,” they said, according to the Journal’s report.
Monday: NAHB Housing Market Index
Wednesday: Bank of Japan and Federal Reserve policy decisions; US existing home sales; General Mills earnings
Friday: New US home sales