Mirror Review
31 March 2025
Key takeaway:
- Rising concerns about “stagflation” – high prices (inflation) coupled with a slowing economy and potential recession – are fueled by President Donald Trump’s planned tariff increases, leading to fears of “Trumpflation.”
Remember the economic pain of the 1970s? That era was marked by stagflation. Now, these stagflation fears grow once again on the minds of investors on Wall Street and everyday people on Main Street.
Why the Growing Worry?
Several warning signs are making economists and investors uneasy:
- Sticky Inflation: Prices are still rising faster than expected. In February, core consumer prices jumped 0.4%—the biggest increase in over a year. The annual core PCE index hit 2.8%, well above the Fed’s 2% goal.
- Slowing Economy: People aren’t spending as much. Consumer spending barely grew in February, up just 0.1%. Some experts even predict the economy could shrink by 2.8% in the first quarter.
- “Trumpflation” on the Horizon: President Trump will announce significant tariff increases on April 2nd, which are expected to drive up consumer prices.
How This Could Hit Your Wallet
If stagflation takes hold, here’s what you might experience:
- Shrinking Purchasing Power: High inflation will make everyday necessities more expensive.
- Job Insecurity: An economic slowdown or recession could lead to job losses. Two-thirds of consumers expect unemployment to worsen – the highest level since 2009.
- Consumer Confidence Plummets: Rising prices and job worries are causing a decline in consumer confidence, which has fallen to its lowest point since 2022. Inflation expectations for the next year have surged to 5.0%.
Wall Street Takes a Hit
The stock market is taking a hit as investors worry about rising prices and slower economic growth. Moreover, the S&P 500 fell 2%, the Dow dropped 1.7%, and the Nasdaq lost 2.7%. This sell-off shows growing concern that businesses might struggle as costs rise and the economy slows down.
Experts Sound the Alarm
Financial experts are becoming increasingly vocal about the risks ahead.
- Barry Bannister, a strategist at Stifel, warns that the U.S. could enter a period of moderate stagflation by mid-2025, potentially leading to a 10% stock market drop.
- Meanwhile, Mohamed El-Erian, chief economic advisor at Allianz, says recent data suggests stagflation is more than just a possibility. Long-term inflation expectations are creeping up, adding to investor worries.
- Moreover, Bank of America economists now consider “modest stagflation” as the most likely outcome for the year.
The Federal Reserve’s Dilemma
The Federal Reserve is in a tricky position. It wants to lower inflation, but raising interest rates too much could slow the economy further or even trigger a recession. Wel, for now, the Fed is expected to keep rates steady while watching things unfold. However, if inflation stays high, cutting rates later (something many were hoping for) might not be possible.
A Cloud of Uncertainty
So basically, the U.S. economy faces a period of great uncertainty. Rising inflation, slowing growth, and the impact of new tariffs? These have created a climate of fear on both Wall Street and Main Street. As of now, all eyes will be on President Trump’s tariff announcement on April 2nd. This could determine whether the economy faces Inflation and perhaps even a Recession.
