The U.S. economy is heading towards a period of stagflation, warns economist Savvas Savouri. This could have significant implications for the dollar, bonds, and stocks.

Dollar to Fall, Inflation to Rise, Savouri Warns

Savouri, the managing director of QuantMetriks, predicts a future where inflation rises, the dollar falls, and the yield curve steepens, reported MarketWatch. His forecasts are based on three main inflationary pressures: a weakening dollar, limitations on cheap migrant labor, and increased tariffs.

Savouri believes that the effects of tariffs have not yet been fully realized in the data. “If you look through the front windscreen rather than the rear-view mirror, it’s clear to see stagflation is coming to the U.S.,” he stated

In a note titled “The Inflationator vs The Powell,” Savouri predicts that the pressure from the White House could lead to a shorter tenure for Powell at the Federal Reserve. 

He is bearish on the dollar, foreseeing a “Wile E. Coyote moment” before it falls. He also predicts a deal between Trump and China’s president Xi Jinping that will allow an appreciation of renminbi, making U.S. goods more competitive.

He advises investors to hedge against these potential adverse movements by buying TIPS (Treasury Inflation-Protected Securities) and suggests that these developments could benefit certain stocks, particularly large caps or big tech with a strong balance sheet and significant portion of their earnings overseas. These are also the companies who can pass on the costs to the consumers.

Warnings of U.S. Economy Nearing Recession Grow

The economist’s warnings come at a time when the US economy is already facing significant challenges. Moody’s Chief Economist Mark Zandi recently warned that the American economy is on the brink of a recession, citing disappointing economic data releases.

These concerns were further exacerbated by the July Jobs report, which raised fears of the U.S. economy being close to “stall speed” and potentially tipping into a recession. 

Federal Reserve Governor Lisa Cook also expressed concern about the report, highlighting the substantial downward revisions to the job numbers for May and June as “typical of turning points” in the economy.

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