The Dangerous Balancing Act: Dealing with Inflation and a Bifurcated Economy

The US economy is currently facing a challenging situation where large companies are thriving while consumers are struggling. This “bifurcated” economy, as described by Nancy Lazar, Piper Sandler’s chief global economist, has only been seen twice before – both times ending in a recession. Large businesses have benefited from high interest rates, favorable financial conditions, surging stock prices, and government support, while consumers are burdened with mounting debts and rising inflation that erodes their wage gains.

Lazar believes that the structure of interest rates needs to increase to address inflationary pressures eventually leading to a recession to correct the excesses in the economy. However, she emphasizes that while a recession poses challenges, it is necessary to combat inflation effectively. With a 53% chance of a recession on the horizon, Lazar emphasizes the importance of addressing the inflation problem before it becomes deeply ingrained in the economy.

According to Lazar, persistence of inflation is more concerning than potential consequences of a recession. She highlights the delicate balance between economic stability and price pressures that needs to be addressed before it becomes too late.