text: InFocus: What to expect from the US economy this yearInflation numbers are looking bleak, consumer sentiment is down, and there’s a cloud lingering over the US economy this year. In yesterday’s Federal Open Market Committee press conference, Federal Reserve chairman Jay Powell was optimistic that the Fed can get inflation under control. I doubt that will be the case. February’s Consumer Price Index (CPI) came in at a 7.9% annualized rate of inflation. That’s up from 7.5% in January and 7% in December 2021. The Producers Price Index (PPI) broke 10%, which is reason to believe CPI will continue upward in March. As is often stated, real inflation is likely much higher than 7.9% – probably something on the order of 16%, if calculated in the same way CPI was calculated in the 70s. There’s also strong reason to believe the Fed won’t be able to wrangle down inflation through interest hikes anytime soon. In the chart below, going back to the Great Inflation, the Fed has had to hike rates as high or higher than the rate of inflation. With CPI at 7.9% and the Fed raising the Federal Funds rate by 25 basis points per quarter, this could be a years-long process. Powell blamed most of the inflation on demand and logistics bottlenecks, which is a fair point. Powell said that he expected demand to temper due to higher prices, which in theory would bring inflation down. Unfortunately, we’ve probably entered into the same runaway inflation scenario that the US experienced in the late 1960s, where government spending on the Vietnam war and President Lyndon Johnson’s Great Society drove inflation higher. The Johnson administration was unwilling to cut government spending that was driving inflation higher, just as we continue to see big spending bills proposed and passed by Congress. It was only a year ago that Congress passed Joe Biden’s American Rescue Plan with a price tag of $1.9 trillion. That money continues to hit the US economy, and it’s unlikely to be the last major spending bill during the Biden administration. As Treasury Secretary Janet Yellen warned, the US is likely to see “another year [of]… very uncomfortably high” inflation. Even St. Louis Fed Bank President Jim Bullard warned that we’re not in a position where inflation “could get out of control.”Above you’ll find this week’s Inflation Matrix, where we chart the outlooks of prominent and successful asset managers, economists, and analysts. We’ll start with DoubleLine’s Jeff Gundlach, who believes we’ll approach 10% inflation before ending the year at 7.5%. Bridgewater’s Ray Dalio and Greg Jensen have both been predicting a new era of stagflation since the 2017 World Economic Forum. No change there. There are some, like Fidelity’s Jurrien Timmer, who expect inflation to sharply moderate to end the year between 3-4%. I believe this is unlikely. Meanwhile, Goldman Sachs’s Jan Hatzius leads the pack with the absolute worst take on inflation. Last year, Hatzius expected a “sharp downward trajectory” on inflation through this year.And then there are some warnings. Former Treasury Secretary Larry Summers, for instance, has been warning of a runaway inflation scenario since 2020. Summers is now saying that the Fed will have to hike interest rates up to 5% in order to combat inflation. At 25 basis points per quarter, that’s nearly four years away. Summers also says there’s only a 25% chance of a soft landing – in other words, the Fed will hike us into a recession.On the topic of recession, there are those like Guggenheim’s Scott Minerd who’s predicting deflation. He said earlier this year that we’re headed for an Eisenhower deflation, when the US experienced a post-war recession and deflationary bust (1957-58). On a monthly basis, many of these months had 0% inflation. Hayman Capital’s Kyle Bass said that we’d be looking at a recession once the Fed hikes rates above 1.5%, which could be as soon as this year. Lastly, David Rosenberg is also predicting a recession as soon as this summer.