“Recession and receding hopes.”

‘God help us when things start turning bad.’

‘California dreamin’. June 2022.

13 JUNE—Over the long Memorial Day weekend, President Biden described inflation as his “top economic priority” and outlined a three-part plan to lower costs for Americans. His plan, however, has been put in the shade by the latest U.S. consumer prices report, which showed inflation rising 1 percent during May, up 8.6 percent from a year ago, adding yet more pressure on the U.S. Federal Reserve to embrace greater monetary restriction, as well as encouraging old-line deficit fetishists to resume their calls for renewed fiscal austerity. 

The danger is that, with a debt-laden economy still struggling to cope with the aftermath of the pandemic and an ever-expanding conflict in Ukraine, Biden’s policy cure for inflation could presage an even bigger economic disaster ahead, especially in light of the reinstatement of lockdowns in China and the recent surge in global energy and commodity prices following Russia’s war in Ukraine.

Despite some recent happy talk by Treasury Secretary Janet Yellen, who characterized the current period as “a period of transition from one of historic recovery to one that can be marked by stable and steady growth,” the reality is that the medium-term prospects for the U.S. economy, indeed the entire global economy, remain dismal. The World Bank is forecasting global stagflation. The OECD, generally a voice of moderation in policy deliberations, also has an ominous take on global economic prospects:

The world is paying a heavy price for Russia’s war in Ukraine. It is a humanitarian disaster, killing thousands and forcing millions from their homes. The war has also triggered a cost-of-living crisis, affecting people worldwide. When coupled with China’s zero-COVID policy, the war has set the global economy on a course of slower growth and rising inflation – a situation not seen since the 1970s. Rising inflation, largely driven by steep increases in the price of energy and food, is causing hardship for low-income people and raising serious food security risks in the world’s poorest economies.

We’ve noted problems in the U.S. economy before, but the Ukrainian war (and the corresponding sanctions imposed in response to the conflict) have made things much worse. Americans are reminded of this on virtually a daily basis, whether it be at the local grocery store, or the gas pump, where gas prices have hit an all-time national high of more than $5.00 a gallon.