The US is experiencing new signs of stagflation, with inflation running hotter and the job market showing weakness, sparking concerns that both issues may worsen in the months ahead. The term “stagflation” evokes memories of the 1970s, when Americans faced a combination of higher prices and limited job opportunities.
Mainstream economists who predicted weaker growth and more persistent inflation were vindicated by recent data. Olu Sonola, an economist at Fitch Ratings, warns that the risk of stagflation has risen significantly, citing inflation drifting further from target, private sector economic growth slowing down, and a warning sign in the labor market.
The economy added just 73,000 jobs last month, with downward revisions suggesting almost no job creation over the previous two months. The Federal Reserve’s go-to inflation measure rose in the final two months of the second quarter, despite moderating underlying growth. A gauge that excludes food and energy prices ticked up slightly from May.
The weak jobs report strengthens the case for the Federal Reserve to cut interest rates in September, but inflation concerns remain a top priority. Trump’s tariffs are pushing prices higher, raising questions about their persistence. Economists note that similar predictions of doom from previous policies were proven wrong, and now many believe the economy will slow down unless interest rates are reduced.
The situation highlights the need for policymakers to carefully balance economic growth with inflation concerns. If Trump gets a rate cut, it may be due to a slowing economy, while if he doesn’t, it could be because of lingering inflation fears.
Source: https://www.axios.com/2025/08/02/stagflation-economy-inflation-growth-trump