WASHINGTON (Fox Business) - Stubbornly high consumer prices, a wave of government spending and a hawkish Federal Reserve determined to bring inflation under control even if it means imperiling the U.S. economy has experts worried about the possibility of a 1970s-style “stagflation” crisis this year.
An overwhelming majority of Wall Street investors anticipate that stagflation will pose the biggest risk to the global economy in 2023, continuing to create volatility in the stock market, according to a recent Bank of America pulse survey.
Around 92% of fund managers expect a period of high inflation and low economic growth next year, while 0% are forecasting a Goldilocks scenario, in which the economy avoids a recession and inflation slows.
“Investor sentiment remained uber-bearish,” the survey said. “Investors kept cash levels high at 6.2%, just below last month’s 21-year peak of 6.3%. Additionally, net 77% are calling for a global recession.”
The responses indicate the stock market could be in for another rocky year after central bank tightening, stubbornly high inflation and the Russian war in Ukraine already sparked a multitrillion-dollar carnage.
Fueling the price spike are several issues related to government stimulus, the pandemic and the rousing economic rebound from the worst downturn in nearly a century. In the wake of lockdown orders that saw a broad swath of the country shuttered, the economy staged a stunning comeback, powered by unprecedented levels of government spending, emergency steps by the Fed and the widespread distribution of vaccines.
Since the pandemic began in February 2020, lawmakers approved a stunning $6 trillion in pandemic-related stimulus money. That includes about $4 trillion under former president Donald Trump and about $2 trillion under President Biden, according to a COVID money tracker published by the Committee for a Responsible Federal Budget, a nonpartisan organization based in Washington, D.C.
About $5.5 trillion of that has been spent or earmarked for future use.
On top of that, a bipartisan group of lawmakers approved another $1.2 trillion infrastructure bill in late 2021, while Democrats passed another $400 billion health care and climate change spending package in the fall. Congress passed the $1.7 trillion omnibus budget bill in December.