The scent of stagflation — that dreaded mix of high inflation and slowing growth — is hanging over Wall Street and Main Street as Trump’s “Liberation Day” tariffs go live today.
Economists are sounding alarms across the board, warning that new levies on global imports could tip the already fragile U.S. economy from soft landing to stagflation spiral.
“There’s an unmistakable whiff of stagflation in the air,” wrote the Financial Times, citing tightening credit, sticky inflation, and faltering demand as early signs.
What’s Happening?
- Average U.S. tariff rate has jumped to ~8% as of March 2025
- Under Trump’s reciprocal plan, that could spike above 35% — levels not seen since the 1800s
- Consumer inflation expectations just hit 5%, per University of Michigan
- March jobs data expected to show hiring slowdown, with unemployment stuck at 4.1%
“This is a stagflation setup,” warned one Morgan Stanley economist on WSJ’s Take on the Week podcast.
What’s Fueling the Fear?
- Trump’s tariffs will raise costs for autos, industrial inputs, and consumer goods
- Wages aren’t keeping up
- Growth projections are sliding — even as prices remain elevated
- Investor sentiment is fracturing
Why It Matters
In normal recessions, the Fed can cut rates. But stagflation ties policymakers’ hands: inflation’s still too high, even as the economy slows.
“It’s the worst-case policy trap,” Axios noted.
What’s Next?
Markets are watching two key data points:
- March jobs report (Friday) — key for labor sentiment
- CPI data mid-April — will show how fast tariffs ripple through prices
As tariffs surge and economic signals flash yellow, the U.S. may be entering its most dangerous economic phase since the 1970s — one where neither Wall Street nor Washington has a clear playbook.
Sources:
- Financial Times – “Whiff of Stagflation”
- Axios – Stagflation vs. Recession
- Fortune – Smell of Stagflation
- WSJ – Take on the Week
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