Is the new stagflation policy-proof?

Project Syndicate/Noriel Roubini/3-30-2022

“A stagflationary negative supply shock poses a dilemma for central bankers. Because they care about anchoring inflation expectations, they need to normalize monetary policy quickly, even though that will lead to a further slowdown and possibly a recession. But because they also care about growth, they need to proceed slowly with policy normalization, even though that risks de-anchoring inflation expectations and triggering a wage-price spiral.”

USAGOLD note: Roubini returns to an old theme in his latest – the no-win situation in which governments and central banks now find themselves. He says no matter which course they take, “households and consumers will feel the pinch.” If the new stagflation, which he sees as already in place, is truly policy-proof, history tells us that the investment options are limited. Stocks and bonds do not have a history of doing well during periods of stagflation – the 1970s being the prime example. Gold and silver, on the other hand, shone brightly during that time period. Citibank released an analysis last week in which it said that because of today’s “unique conditions,” it has “added tactical exposures to natural resources, oil services and gold.”