Harvard University professor Kenneth Rogoff, a former chief economist at the International Monetary Fund, told “Mornings with Maria” on Thursday that a contraction in the U.S. economy in the first quarter is “shocking.”
The economist made the comment shortly after it was revealed that gross domestic product (GDP), the broadest measure of goods and services produced across the economy, fell at a 1.4% annualized rate in the three-month period from January through March, noting that the number is “even below the worst” he thought it might have been.
The Commerce Department revealed in its first reading of the data on Thursday that the U.S. economy cooled markedly in the first three months of the year, as snarled supply chains, record-high inflation and labor shortages weighed on growth and slowed the pandemic recovery.
Rogoff noted that he was expecting a low number, but the U.S. economy shrinking by 1.4% is “shocking.” He pointed out that negative growth coupled with inflation accelerating to a new four-decade high last month is not good for the macroeconomic picture.
The Labor Department said earlier this month that the consumer price index (CPI) – which measures a bevy of goods including gasoline, health care, groceries and rents – rose 8.5% in March from a year ago, the fastest pace since December 1981, when inflation hit 8.9%. Prices jumped 1.2% in the one-month period from February, the largest month-to-month jump since 2005.
Price increases were widespread: Energy prices rose a stunning 11% in March from the previous month, and are up 32% from last year. Gasoline, on average, costs 48% more than it did last year after rising 18.3% in March on a monthly basis as the Russian war in Ukraine fueled a rapid increase in oil prices.
Rogoff noted that the economy is “a growth story, but it’s deteriorating, and the question is, how far?”
“The consumer has a lot of money saved up from stimulus checks and savings from the pandemic, but on the other hand, inflation, is really high, the war is still going on, and I think the biggest unknown is this Fed tightening cycle.”
He argued that if the Federal Reserve does not “hike a lot, there is going to be inflation and if they do, there is going to be a massive recession.”
A recession refers to a contraction in gross domestic product (GDP) activity, the broadest measure of goods and services produced across the economy, for two consecutive quarters.
“What I feel really worried about is, I don’t see how the Fed will both bring inflation, down to say 2.5 to 3%, and not have a massive recession,” Rogoff said.
“I think to do that, they’d have to hike rates 4, 5% at least, and over the next year and a half, I don’t think they are going to do that.”
“I suspect we are going to end up with still high inflation and maybe even still a recession,” he continued.
Federal Reserve Chairman Jerome Powell last week solidified expectations for a half-percentage point rate hike at the central bank’s May meeting as officials look to tame red-hot inflation.
FOX Business’ Megen Henney contributed to this report.