By Lorie Konish
The U.S. economy is still in a “strong position” despite “heightened uncertainty,” according to the Federal Reserve’s latest assessment.
Yet there’s a looming economic risk the U.S. hasn’t meaningfully faced for decades — stagflation.
“The risks of higher unemployment and higher inflation appear to have risen,” Federal Reserve Chairman Jerome Powell said on May 7.
Those two factors — along with slower economic growth — are the definition of stagflation.
Stagflation is not here yet. The unemployment rate is low and inflation has come down, though it is still higher than the Fed’s 2% target, Powell noted last week. Signs that the economy is in a “solid position” prompted the central bank to leave the short-term federal funds interest rate unchanged.
What’s fueling stagflation fears
Swiftly shifting tariff policies are the main threat prompting experts to sound stagflation warnings. Uncertainty related to tariffs is also a strong factor contributing to stagflation risks, according to Greg McBride, chief financial analyst at Bankrate.
“Uncertainty, in and of itself, is a drag on economic growth,” McBride said.
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