For many months, financial news outlets and analysts have been discussing the chances of a “soft landing”—a situation in which inflation decelerates to normal levels without a recession or other economic downturn. This scenario remains the stated goal of the Federal Reserve as it attempts to tighten monetary policy and rein in inflation.
Recent data, however, has thrown a wrench into that outlook.
In fact, the worrisome “hard landing” scenario—where slowing inflation leads to a recession—may no longer be the worst possible outcome.
GDP and PCE data point to big potential problems for the economy.
U.S. Gross Domestic Product (GDP) grew only 1.6% in the first quarter of 2024, its slowest pace in nearly two years and well below the 2.4% growth predicted by economists who took part in a Dow Jones survey. In contrast, U.S. GDP grew 3.4% in the fourth quarter of 2023.
Upon news of this significant GDP under-performance on April 25, 2024, the Dow Jones Industrial Average fell by as much as 600 points in intraday trading.
One day later, the U.S. Department of Commerce released the core Personal Consumption Expenditures (PCE) Index, the favored gauge used by Federal Reserve officials to measure the growth of inflation. Core PCE grew at a rate of 2.8% year over year in the first quarter of 2024, above the Dow Jones estimate of 2.7%.
Analysts and commentators are increasingly worried about a “stagflation” scenario.
David Donabedian, chief investment officer of CIBC Private Wealth, says the slower-than-expected growth and higher-than-expected inflation make for a “worst of both worlds report.”
Donabedian’s concerns are shared by CEOs and others worried about stagflation—a period during which an economy experiences both high inflation and slowed growth.
JPMorgan Chase CEO Jamie Dimon has publicly stated that he is concerned the U.S. is headed for a repeat of the stagflation that took place in the United States during the 1970s. Mike Reynolds, vice president of strategy at Glenmede, told Business Insider that he has recently become more attentive to stagflation risks. Mark Haefele of UBS Global Wealth Management called stagflation “the scenario no one was really prepared for” in an interview with MarketWatch.
Gold may serve as an important source of protection in a stagflation environment.
I believe in being prepared for the situations that “no one is prepared for”—and one way many Americans prepare for scenarios like economic stagflation is to enhance and diversify their portfolios with physical gold.
Gold has been recognized as a hedge against both inflation and slow economic growth in the past. Were we to find ourselves in a prolonged period of stagflation, gold’s history of hedging against both forms of risk may make it a critical asset in your savings strategy.
