Economists believe stagflation is here to stay and will drive employment and GDP numbers down as the U.S. economy continues to shrink, according to a report presented at the SIFMA Economic Advisory Roundtable, which brings together chief U.S. economists of 27 global and regional financial institutions. 

Their predictions are in line with a recent Bank of America global fund manager survey in which the fears of stagflation are at their highest levels since June of 2008. This has triggered the Federal Reserve to raise interest rates and is sending warning signs of an even greater unemployment issue with figures expected to rise to 3.6 percent. 

“We are seeing clear signs of improvement, reaching that light at the end of what has been a very long and very painful tunnel. At the same time, many of last year’s risks still remain, complicating the outlook for the domestic recovery: policy risks, inflation risks, supply distortions, an ongoing labor supply shortage, and more recently international conflict and more aggressive monetary policy, just to name a few,” said Dr. Lindsey Piegza, Ph.D., chief economist and managing director at Stifel Financial Corporation and chair of SIFMA’s Economic Advisory Roundtable. 

“While we have seemingly made it past one crisis, another lurks around the corner as the Fed raises rates, potentially enough to stall consumers and businesses, and choke off domestic economic growth entirely,” said. 

Forecasters with the Federal Reserve Bank of Philadelphia predict that the effects of stagflation will continue to grow at an annual rate of 2.3 percent, down 1.9 percentage points from initial predictions of 4.2 percent. The GDP is expected to continue to remain steady into 2023 and 2024 at a rate of 2.3 and 2.0 percent, respectively. 

Job trends continue to look positive as the unemployment rate is expected to improve from 3.6 percent this quarter to 3.5 percent over the next four quarters. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 479,700 in 2022, nearly 50,000 more jobs than in the previous estimate.

Analysts are predicting this downward trend for employment numbers with rates expected to reach 3.8 percent by 2023.

Forecasters predict the next decade will see a period of economic stagnation. Between 2022 and 2031, the forecasters predict headline consumer price index (CPI) inflation will average 2.80 percent at an annual rate. The corresponding estimate for 10-year annual-average personal consumption expenditure (PCE) inflation is 2.40 percent, higher than original estimates.