The good news is fourth-quarter GDP set a blistering pace of 6.9% lifting 2021’s full-year growth to 5.7%. The bad news is the economy is running hot and exceeding growth expectations. Now the Fed has a clear path to boldly raise interest rates to fight inflation. Fed Chair Powell has indicated a drop in markets won’t cause him to reverse course this time, believing this strong trending economy can withstand a rate hike cycle without falling into a recession. The Goldilocks scenario is called a soft landing.
Inflation is a much more embedded problem than the Fed and politicians have been indicating. Shifts in the social system driving redistribution politics, the Fed’s easy monetary policy, and a pandemic have collided together to drive a very dangerous wave of wage and price inflation into the economic system. We have not seen this type of inflation set up since the 1970’s Stagflation crippled the U.S. economy.