Former Obama economist warns stagflation threat level is 'highest in a long time'

The danger of the U.S. economy returning to a 1970s-style stagflation scenario is the highest it's been in decades, according to former President Barack Obama's top economic adviser.

Jason Furman, a Harvard University professor who previously served as chair of the Council of Economic Advisers, warned that an aggressive Federal Reserve, rising interest rates and persistently high inflation have raised the possibility of a period of stagnant economic growth and high consumer prices.

"It's a real risk," Furman said during an interview with FOX Business. "It's the biggest risk of stagflation we've had in a long time. But it's not a guarantee that the economy goes into recession. Consumers still have a lot of money. They're still spending. So there's still some hope for the U.S. economy."

Stagflation is the combination of slowed economic growth and high inflation, characterized by soaring consumer prices as well as high unemployment. The phenomenon ravaged the U.S. economy in the 1970s and early 1980s, as spiking oil prices, rising unemployment and easy monetary policy pushed the consumer price index as high as 14.8% in 1980, forcing Fed policymakers to raise interest rates to nearly 20% that year. 

Inflation accelerated again in May, the government reported earlier this month, with the consumer price index, rising by 8.6%, much higher than economists expected. It marks the fastest pace of inflation since December 1981, underscoring just how strong inflationary pressures in the economy still are.

Scorching hot inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food, gasoline and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations. 

The stock market has also suffered amid the backdrop of rising inflation and interest rate hikes with the S&P 500 down 20% this year.