This is Exchanges at Goldman Sachs and I'm Allison Nathan, senior strategist in Goldman Sachs research and creator and editor of the firm's top of mind report.

In this episode, we're focusing on the risk of stagflation.

That's the combination of stagnant growth and higher inflation that many of our

listeners might remember from the 1970s. Today we're facing two major growth risks

that are looming large against a backdrop of alarmingly high inflation.

The first growth risk is the prospect of a policy mistake in the U.S.

as the Fed has embarked on a tightening cycle to rein in inflation,

which was already running at multi-decade highs

before the tragic Russia-Ukraine conflict delivered a sizable commodity shock.

And the second growth risk is the prospect that the conflict deals a crippling economic blow to Europe in particular given Europe's dependence on Russian energy.

How US and European policy makers navigate these risks and their growth and market consequences are top of mind.

We first speak to Eric Rosengren, former president of the Federal Reserve Bank of Boston,

who believes that even though the Fed has now begun to hike rates, it remains

behind the curve in addressing inflation. They are definitely behind the curve.

Inflation is well above 2%, as we all know, both by PCE and CPI. The unemployment rates below 4% so

arguably we're at full employment it's certainly below the CBO's estimate of

full employment. In that environment, we should see interest rates that probably are a little above neutral.

And so if you think eventually we're going to hit an inflation target of 2%, and

the real rate of interest ought to be positive, not negative.

We're pretty far away from that point.

So I do think they have a lot of room to catch up.

If any mistake was made, I think it was really not pivoting earlier.

...