Economic growth has stalled this year, with inflation on the rise and consumers anticipating both trends worsen in the coming months. The combination of stagnant growth and elevated inflation is dubbed “stagflation,” a scenario that was most evident during the 1970s.
Stagflation is painful because it affects people’s job prospects and purchasing power. Policymakers face a challenge as addressing one issue can exacerbate the other, limiting their ability to mitigate its impact.
Recent data shows President Trump inherited a weaker economy than initially thought, and his policies may worsen the situation with aggressive moves. The Atlanta Fed estimates Q1 economic activity will shrink at 0.5% rate, while inflation has risen at a 4.1% annual rate in the first two months of 2025.
Some analysts point to a one-time surge in imports distorting the GDP number, but inflation has been on an uneven path for years. The job market remains relatively strong, with key measures holding up despite Americans’ growing pessimism about future job prospects and inflation.
A recent University of Michigan survey found that two-thirds of respondents expect unemployment to rise over the next year, the highest share since 2009. Expectations for inflation also surged to 5%, from 4.3%. This suggests that ordinary Americans are becoming increasingly concerned about both issues simultaneously.
Policymakers’ inaction on stagflation poses a significant risk, as traditional policy tools may be ineffective against this dual challenge. The president and his advisers seem to downplay the risks of economic stagnation or inflation spikes, believing that their aggressive policies will ultimately boost long-term growth.
Source: https://www.axios.com/2025/03/30/stagflation-economy-inflation-growth