According to former Morgan Stanley Asia chairman Stephen Roach, stagflation is returning.

He warns that the US is on a dangerous path leading to higher prices combined with slow growth.

“This problem with inflation is widespread, permanent and likely to be long-lasting,” Roach told CNBC’s Fast Money on Thursday. “Markets don’t even remotely discount the entire amount it will take to take control of demand … It only underscores a deep hole [Fed chief] Jerome Powell now. ”

Roach, a senior researcher at Yale University and a former Federal Reserve economist, called stagflation his baseline option, and the debate over the peak of inflation absurd.

“The demand side has really moved away from the Fed,” he said. “The Fed has to do tremendous brutality.”

Roach expects inflation to remain above 5% by the end of the year. At the current rate of increase in interest rates, the Fed will not reach this level.

“50 base points doesn’t cut it. And, excluding something bigger than that, he is [Powell] just sends a signal that he has his hands tied, “Roach added.” Markets are uncomfortable with such a conclusion. “

The Dow is in its eighth negative week in a row, for the first time since 1932. The S&P 500 and tech Nasdaq have been tracking their worst weekly losses since 2001.

Roach began sounding the alarm about inflation risks in the 1970s two years ago, in the early stages of a pandemic. He listed the historically low interest rates, the Fed’s easy money policy and the country’s huge debt.

His warning became louder last September on CNBC. Roach warned that in the US from stagflation there is one failure in the supply chain.

And now he sees even more reasons to be on the alert.

“I would add to this zero Covid in China along with the aftermath of the war in Ukraine,” Roach said. “This will support the proposal for the next few years in terms of clogging price detection.”

Chris Hayes of CNBC contributed to this report.


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