Yet as the United States approaches 2025, economists are sounding alarm bells over stagflation. This term evokes the economic calamity that beset the 1970s. Recent policy changes made by the Trump administration only add to this uncertainty. Consequently, corporate and consumer confidence has already started to shake. A strong economy entering the new year is giving way to a host of new problems, leaving many wondering what the new normal will look like economically.
During the economic turmoil of the 1970s, stagflation emerged as a primary focus as both unemployment and inflation rose significantly. This crisis was largely aggravated by the costly Vietnam War and significant de-industrialization, particularly job loss in manufacturing. Today, experts insist that the circumstances might seem similar but they aren’t the same. Greg Daco, chief economist at EY Parthenon, emphasized the gravity of the current situation: “It’s a more pronounced risk than at any time over the past 40 years.”
The Trump administration’s widely despised tariff policies have been at the center of national debate over the potential return of stagflation. By doing this these tariffs create volatility in the market causing confusion and fear among both consumers and manufacturers. As prices rise and job security wanes, many economists argue that these tariffs fuel stagflation conditions, creating a precarious economic environment.
Diane Swonk, chief economist at KPMG, remarked on the current climate: “We’re seeing that kind of whiff of stagflation, where people are less secure about their jobs and they’re more worried about inflation down the road.” This sentiment is part of a larger worry that has already trickled down to start affecting consumer confidence.
In a survey of more than 400 economists conducted in early 2022, 80 percent considered stagflation to be a long-term threat. The consistent and rapid policy changes out of Washington D.C. have forced many to revise their economic projections downwards. As uncertainty continues to grow, Americans will need to start making the kind of proactive decisions usually made during recessionary times while combating high inflation.
Although inflation may be cooling, many financial professionals still think that interest rates can outpace it. They recommend online high-yield savings accounts as a safe, low-cost way to save. This has resulted in cries for smarter fiscal planning. Skelly, head of Morgan Stanley Wealth Management market research, advised, “Don’t do it all in one day, but start winding down some of that cash, now that values are more fair than they were a month or two ago.”
The same conditions that have led to these discussions are similar to those that confronted then Federal Reserve Chairman, Paul Volcker, in the late 1970s. Specifically, what caused the shift was Paul Volcker’s dramatic tightening of monetary policy as response to crippling inflation. Today’s policymakers will be more hard pressed if stagflation were to strike. As a result, many stakeholders worry it will result in “the worst of both worlds”—skyrocketing unemployment coupled with skyrocketing costs.
Brett House is professor of professional practice in economics at Columbia Business School. In doing so, he underscored how the Trump administration’s tariff policies have dramatically increased the risks of higher inflation and lower growth. Especially as tariffs add new layers of volatility to both prices and supply chains, businesses are faced with mounting complexity as they try to ensure profitability despite the strain.
Adding to this complexity is consumer behavior in this changing landscape. Sarah Foster, an economic analyst at Bankrate, emphasized the importance of proactive purchasing decisions: “It is absolutely wise right now to buy something that you know could be impacted by tariffs that you’ve already been budgeting for.” This kind of strategic planning would prevent new financial burdens before they start.