Stagflation, a term that implies stagnant growth combined with inflation, is gaining traction in the US economy. This concept has emerged due to the ongoing impact of tariffs, which have stirred up concerns about lifeless growth and higher prices. The latest economic data suggests a weakening perception of the economy, with companies easing hiring practices and manufacturing activity slowing down.
Industry experts point out that stagflation’s ominous specter is especially concerning due to the limited range of tools available to address it. Apollo chief economist Torsten Sløk notes that trade wars are inherently stagflation shocks, causing higher prices and lower sales. The Federal Reserve implemented high interest rates in an effort to combat inflation, which were recently cut as part of a “soft landing.” However, in the new Trump context, Wall Street expects rate cuts to alleviate economic slowdowns rather than vanquish inflation.
The ongoing tariffs are exacerbating price increases, leading the Fed to delay rate cuts. Chair Jerome Powell faces a dilemma, balancing maximum employment with stable prices. With stagflation looming, investors are left wondering where optimism can come from amidst uncertainty and potential disruptions from the White House. The goal of rewriting US participation in global trade to make “America rich again” remains nebulous, casting doubt on investor confidence.
As businesses and consumers perceive price hikes as a threat, the fear of stagflation can become self-fulfilling. This trend is evident in conservative spending and hiring practices. With this in mind, investors must navigate the complex landscape of US tariff policy and its implications for the economy.
Source: https://finance.yahoo.com/news/the-scariest-word-in-economics-is-back-morning-brief-110054761.html