The US Economy is facing potential rollercoaster inflation and an unusual “full employment recession,” according to a warning from BlackRock strategists. The conflicting pressures in the economy, with prices falling but wages rising, could lead to volatile prices in the future. This shift in consumer spending from goods to services is driving goods deflation, while the tight labor market is driving wage inflation. The result could be a rollercoaster trajectory before inflation settles near 3%, above the Fed’s target. This could negatively impact corporate profits and stocks. Strategists have been warning investors for months that easy money is no longer the norm, with elevated inflation and interest rates here to stay. This has created a new regime of volatility, with the risk of a US recession. Aging populations in major economies could lead to worker shortages, which may incentivize companies to hold onto workers during downturns. This could result in “full employment recessions” and further impact corporate profit margins. The Fed is expected to raise interest rates to tame inflation, with a 67% chance of a downturn by June 2024. Unemployment has remained relatively steady, with a jobless rate of 3.6% in June.
