Rising costs, growing wages, trade wars and a deficit creeping toward $1 trillion are causing businesses and investors to become concerned about inflation.
U.S. companies are raising prices to pass off higher costs for fuel and metal components onto consumers. Trucking costs were up 7 percent annually in September, as trucking companies passed along their own higher labor costs, according to The Wall Street Journal.
Private-sector wages and salaries in the September-ended quarter rose 3.1 percent from a year earlier, the strongest gain since 2008, the Labor Department said last week.
It is a tricky moment for the U.S. economy, according to the WSJ.
“Unemployment is at the lowest point in decades, and economic growth is strong. Inflation is near the Fed’s 2 percent target, but price rises could pick up if pressure from labor shortages and tariffs intensify in a still-robust economy,” wrote the newspaper. “Alternatively, other factors could offset such pressures, including the stronger U.S. dollar, which makes imports cheaper.”
At some point, higher prices could stifle the economy’s growth, and investors worry that an increase in inflation will prompt the Fed to raise interest rates more quickly to prevent the economy from overheating.
The Federal Reserve decided it wouldn’t raise rates last week, but media reports say they are likely to rise next month.
The Fed noted that business investment “has moderated from its rapid pace earlier in the year,” a surprise since the tax cuts were expected to boost business spending, but did not mention a housing market slowdown or stock market jitters, according to the Washington Post.
"Crises gets generated after a period of time when you disregard [something],” said Greenspan. “Most recently, we’ve disregarded the federal budget. We are going to have a $1 trillion deficit in the next fiscal year. But when inflation goes up to 4 percent to 5 percent, it is politically disastrous. That's when it becomes an issue. But when it starts rising, it’s already too late in the game to stabilize it."
Greenspan sees seven major risks to the U.S. economy now: the ballooning U.S. federal budget deficit, soaring inflation, falling U.S. national savings rate, falling productivity, a bond market bubble, undercapitalized banks, and trade wars.
“There are no winners in a trade war,” said Greenspan, adding that tariffs are “exactly the same as an excise tax. You are shooting yourself in the foot.”