Stagflation characteristics are elevated inflation, high unemployment, and low GDP growth but what it leads to is a long period of unaffordability and reducing standard of living.
We are stepping toward that:
We might already be there. Thoughts on an upcoming "lost decade"?
The big concern is stagflation, a rare condition where inflation and unemployment both run high. Once it starts, stagflation can be hard to reverse. That’s because aggressive moves in response to spiking inflation can drive up unemployment and stifle economic growth, while lowering rates to boost economic growth risks driving up prices.
The stagflation risk is real. Towards the end of last year, the weakening job market said “cut,” while the tariff-induced price pressures said “hold.” In both speeches and votes on monetary policy, differences within the FOMC were on full display (three voting members dissented in mid-December, the most since September 2019). Most members clearly weighted the risks to the labor market more heavily than those of inflation, including Fed Chair Jerome Powell, though he did so while chanting the mantra that “there is no risk-free path for policy.”
www.forbes.com
“I still think that stagflation is a risk because there's still some headwinds coming, especially if artificial intelligence doesn’t deliver," says Sløk of Apollo Global Management. He adds that “given that inflation is very sticky and now has the risk of going up over the next six months, then the key issue for the FOMC becomes: can we even cut in that environment?”
“In other words,” Sløk concludes, “the Fed continues to forecast stagflation and is concerned that we in 2026 may experience rising inflation and rising unemployment at the same time.”
The world’s largest economy reverting to the 1970s is in no one’s best interest. Particularly when you consider how different stagflation can be to defeat. The Paul Volcker Fed had to push short-term rates up to 20% to restore price stability in the late 1970s and early 1980s. That would be unthinkable today with the U.S. national debt topping $38 trillion. Nor would the Trump White House be likely to tolerate the Fed applying the brakes.
We are stepping toward that:
- Inflation has been sticky at 3% and showing signs of rising with PPI increases
- Unemployment continues to rise and job openings are falling
- GDP growth has been anemic over the last year especially when you factor out import shocks and precious metal purchases
- Stagflation is made worse and tricky with a shrinking labor force (aging population and immigration pressures) which leads to more inflation or potentially pressure on GDP
- Consumers already feel the unaffordability crunch of a stagflation as reflected in polls and consumer confidence
We might already be there. Thoughts on an upcoming "lost decade"?
The big concern is stagflation, a rare condition where inflation and unemployment both run high. Once it starts, stagflation can be hard to reverse. That’s because aggressive moves in response to spiking inflation can drive up unemployment and stifle economic growth, while lowering rates to boost economic growth risks driving up prices.
The stagflation risk is real. Towards the end of last year, the weakening job market said “cut,” while the tariff-induced price pressures said “hold.” In both speeches and votes on monetary policy, differences within the FOMC were on full display (three voting members dissented in mid-December, the most since September 2019). Most members clearly weighted the risks to the labor market more heavily than those of inflation, including Fed Chair Jerome Powell, though he did so while chanting the mantra that “there is no risk-free path for policy.”
Is Stagflation The Biggest Global Risk In 2026?
China is grappling with deflation. The U.S. and Japan, meanwhile, are struggling to keep 3%-range inflation from becoming the new normal. But as 2026 approaches, might stagflation become the real challenge for the global economy?
www.forbes.com
“I still think that stagflation is a risk because there's still some headwinds coming, especially if artificial intelligence doesn’t deliver," says Sløk of Apollo Global Management. He adds that “given that inflation is very sticky and now has the risk of going up over the next six months, then the key issue for the FOMC becomes: can we even cut in that environment?”
“In other words,” Sløk concludes, “the Fed continues to forecast stagflation and is concerned that we in 2026 may experience rising inflation and rising unemployment at the same time.”
The world’s largest economy reverting to the 1970s is in no one’s best interest. Particularly when you consider how different stagflation can be to defeat. The Paul Volcker Fed had to push short-term rates up to 20% to restore price stability in the late 1970s and early 1980s. That would be unthinkable today with the U.S. national debt topping $38 trillion. Nor would the Trump White House be likely to tolerate the Fed applying the brakes.
