PIIE President Warns of Worst U.S. Stagflation Shock in Decades

Former New York Fed Economist
Predicts 65% Probability of Recession

Adam Posen, president of the Peterson Institute for International Economics (PIIE), has warned that the U.S. economy could experience its worst bout of stagflation?inflation during an economic downturn?in decades as a result of the trade policies of the Donald Trump administration.

According to MarketWatch on April 17 (local time), Posen stated in a speech this week, "There may or may not be a recession, but either way, we are heading toward inflation." He estimated the probability of a recession at 65%.

Posen previously served as an economist at the Federal Reserve Bank of New York from 1994 to 1997 and as a member of the Monetary Policy Committee at the Bank of England (BOE) from 2009 to 2012. He has been president of PIIE since 2013.

He pointed out that even if President Trump reaches trade agreements with several countries, tariffs are likely to remain in place. He argued that tariffs would increase inflationary pressures and slow down the economy, identifying these as causes of stagflation.

Posen also predicted that even if the Republican Party lowers taxes and eases regulations, uncertainty stemming from the White House would prevent households and businesses from increasing spending and investment.

He further forecast that the disruption caused by President Trump would lead to shortages of key goods and services, resulting in higher prices and increased inflation. He also noted that if the U.S. government provides subsidies to domestic industries to offset the impact of tariffs, this increased fiscal spending could further fuel inflation.

Posen dismissed expectations for a "Fed put." He argued that, given persistently high inflation, the Federal Reserve has already cut rates too much, and if prices begin to rise again, the Fed could fall behind the curve.

He added that the Fed would have no choice but to raise rates sharply and quickly, which could place additional stress on the economy.