The Blubber

The US economy is in for rollercoaster inflation and could be headed for an ultra-rare 'full employment recession,' BlackRock, $BLK, has said.

BlackRock issued a warning that the US economy may experience chaos due to the risks of rollercoaster inflation and an unusual "full employment recession."

In a recent note, the asset manager highlighted conflicting pressures in the economy, which could lead to price volatility in the future. Consumers are shifting their spending from goods to services, causing goods deflation, while the tight labor market is driving wage inflation as workers demand higher pay.

This combination is likely to result in a rollercoaster trajectory in the coming quarters until inflation eventually settles around 3%, surpassing the Fed's 2% target.

Such fluctuations could have negative implications for stocks, with high inflation potentially impacting corporate profits by increasing costs for firms. Conversely, falling inflation may weigh on goods prices, further affecting profits.

BlackRock emphasized that good economic news, like falling inflation, might not necessarily translate into positive outcomes for the markets. Corporate margins could be squeezed if inflation remains high, and an even larger squeeze may occur if it falls.

The strategists have been warning for months that investors are operating in a new era, with elevated inflation and interest rates becoming permanent features of the economy. As a result, markets are expected to face increased volatility, with a US recession predicted in previous notes.

Additionally, the new economic regime is anticipated to witness a shortage of workers due to aging populations in major economies. This circumstance could lead firms to retain their employees during downturns, further impacting the stock market negatively.