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Economic Outlook: Uncertainty Looms as Inflation Remains High

By Lesley Kennedy  |  October 14, 2022

ATLANTA—Yes, there’s a lot of uncertainty surrounding today’s economy. But, for now, the name of the game is to get inflation under control, according to Michael Chriszt.

The vice president and public affairs officer for the Federal Reserve Bank of Atlanta shared a high-level look at the U.S. economic climate and how it may affect states during a session at NCSL StaffHub ATL 2022 earlier this week.

Inflation is being compared to its heights in the 1980s, but Chriszt said there are some important differences to note when it comes to what’s happening now.

We’re not losing hope that there will be some sort of soft landing. —Michael Chriszt, Federal Reserve Bank of Atlanta

“We’ve been able to raise interest rates with a very strong labor market,” he said. “That wasn’t the case in the early 1980s, late 1970s. So, the feeling is that there’s a little bit of room to raise interest rates aggressively without doing damage to the economy. … We’re not losing hope that there will be some sort of soft landing.”

Real GDP, which offers the broadest measure of the country’s economic activity, shows the last two quarters have been slightly negative, but that does not mean we are in a recession, Chriszt said.

“I think that’s something that you hear quite a bit: Two negative quarters means you’re in a recession,” he said. But, he noted, the National Bureau of Economic Research decides retroactively whether the economy is in a recession, looking at GDP growth, as well as at labor market strain.

“I’m betting that if you put the NBE on the spot today and asked, ‘Would you say we are in a recession right now?’ the answer would be no because our labor markets are still very strong,” Chriszt said.  

Consumerism is also still very strong, and third-quarter GDP looks a bit stronger, he added.

“If the data that we have in hand, if the strength keeps coming in as it has been, we’ll very likely see a return to positive growth in the third quarter,” he said. “You have quarters where you’re really ramping up interest rates and yet the economy’s still growing, which typically isn’t the case.”

Supply Chain Snarls

So, what caused inflation to get so high so fast? For one, Chriszt pointed to pandemic-related supply constraints and an imbalance in supply and demand.

“We didn’t think demand was going to be as strong as it was, and we didn’t think supply was going to stay as low for as long as it did,” he said. “The result is, with the imbalances in supply and demand, huge injections into the economy from the fiscal side, monetary policy staying very accommodative and basically interest rates very low for a long time, all that led to the inflation situation that we have today.”

On the positive side, the economy is showing consistent, positive jobs growth, with very low unemployment rates. But still, Chriszt said, data and business surveys show the inflationary environment that we’re in isn’t going to go away anytime soon.

When looking at how the overall economy is evolving, he drew on an analogy: Even when an ambulance is speeding to an emergency, it slows down at intersections. “So, the idea is, we’re going to be looking around to make sure that we’re not going to do more undue damage or cause undue damage.”

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