How Policymakers are Navigating Stagflation Risk

Economists Eric Rosengren and Philip Hildebrand warn that the U.S. and Euro Area face heightened stagflation risks driven by multi-decade inflation levels and supply shocks from the Russia-Ukraine conflict. While the Federal Reserve is criticized for being behind the curve in raising rates, strategies involving balance sheet recalibration are debated to avoid a policy-induced recession predicted by Goldman Sachs analysts. Policymakers remain compelled to continue tightening to anchor inflation expectations, even as forecasts suggest a shallow normalization cycle and a growth slowdown to approximately 2%.