Stagflation has been on the table for some time.
Before how, let's see what it's about?
Stagflation is an economic situation where high inflation occurs simultaneously with slow economic growth and high unemployment. Essentially, it's a combination of stagnation and inflation, making it a challenging situation for policymakers.
So, Powell (Fed) must be in a dilemma. In last rate decision it was quite evident with two mebers voting in favour of rate cuts. They are not sure.
What's caused this?
Tariffs! What else?
From the moment he (Trump) was elected in November, Trump’s tariff promises made slowing growth and rising inflation many pundits’ base case. It has been the Federal Reserve’s best guess all year: both of the central bank’s Summary of Economic Projections, especially the one in June, hinted at stagflation.
What causes stagflation?
Stagflation is often triggered by supply-side shocks, such as a sudden increase in the price of oil or other essential resources. These shocks can raise production costs, leading to inflation, while also negatively impacting overall economic activity and causing unemployment.
The median estimate by members of the Federal Open Market Committee in June was for 3.1 per cent core personal consumption expenditure inflation and 1.4 per cent real GDP growth by the end of 2025 — an uptick and downgrade from the Fed’s March and December forecasts, respectively.
This can't be true. It's not a true picture of stagflation because....
But that threat had faded. Back in May, successive positive economic surprises had many Unhedged readers predicting the economy would end the year “just right” or “too hot” — not stalling.
Stagflation = Economic Chaos = You never know what's gonna happen next.
.....companies are starting to run down the inventories they built up in the first quarter as a means of getting ahead of the tariffs. Second-quarter GDP, out last month, showed a troubling change in inventories:
The quarter 3 will see bigger decline (in inventories).
It's not clear what side the came sits but....
....inflation expectations are rising again:
There are other spectres that could add to the stagflation narrative. Oil prices have remained restrained, but Trump is turning up the pressure on Vladimir Putin by adding additional sanctions to Russian oil.
And most folks have already assumed that Trump is gonna meet Putin to break a peace deal for Ukraine.
The war is more profitable than peace for the bloc NATO+
If it stops, the stagflation will be more visible.