Economist Says 'Stagflation' a Threat

The chief economist for the New York Stock Exchange says rising commodity prices coupled with the housing downturn's drag on the economy is fostering the possibility of "stagflation," a mixture of inflation and economic weakness last seen in the 1970s. Speaking at SourceMedia's second annual mortgage servicing conference in Dallas, former New York Federal Reserve economist Paul Bennett said he does not see "much sign of a bottom" in housing conditions, given the continuing declines in residential construction activity. He said home prices, already down about 10% to 15% nationally last year, may fall by a similar amount this year. Competition for oil and other scarce resources from rapidly growing economies such as China is driving up prices for many commodities, he said. That is adding to inflationary pressure despite the economic weakness in the United States. Still, he expects the Federal Reserve Board to continue reducing interest rates in the near term to help stabilize the U.S. housing sector and offset the risk that rate resets will drive up foreclosures.