JPMorgan warns investors should brace for 1970s-style 'stagflation'
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U.S. stocks smashed a new record high last week, but the rally may not last for long thanks to heightened risks that the economy returns to a 1970s-style stagflation scenario, according to JPMorgan Chase strategists.
In an analyst note to clients, the bank's chief market strategist Marko Kolanovic warned that the economy may turn away from a «Goldilocks» scenario – in which it is not expanding or contracting by too much – and enter a period of stagflation similar to that experienced in the 1970s.
«Going back to the question of market macro regime, we believe that there is a risk of the narrative turning back from Goldilocks towards something like 1970s stagflation, with significant implications for asset allocation,» Kolanovic wrote.
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Traders work on the floor of the New York Stock Exchange in New York City, on June 30, 2022. (REUTERS/Brendan McDermid / Reuters Photos)
Stagflation is the combination of economic stagnation and high inflation, characterized by soaring consumer prices as well as high unemployment.
The phenomenon ravaged the U.S. economy in the 1970s and early 1980s, as spiking oil prices, rising unemployment and easy monetary policy pushed the consumer price index as high as 14.8% in 1980, forcing Federal Reserve policymakers to raise interest rates to nearly 20% that year.
«There are many similarities to the current times,» the analysts said. «We already had one wave of inflation, and questions started to appear whether a second wave can be avoided if policies and geopolitical
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