Economists Warn of Potential US Stagflation amidst Rising Tariffs

Economists are raising alarms as the United States faces a possible period of stagflation, marked by stalled economic growth, increasing unemployment, and accelerating inflation. Richard Clarida, a global economic advisor at PIMCO and former vice chairman of the US Federal Reserve, highlighted on Bloomberg Surveillance the early signs of stagflation. Clarida expressed concerns that inflation might climb due to new tariffs introduced by the Trump administration, prompting questions if such economic conditions might persist in the long term. The last occurrence of stagflation was seen in the 1970s amidst oil price shocks. Recent surveys indicate a decline in consumer confidence, with significant drops seen in the metrics from the University of Michigan and The Conference Board, pointing to broader economic challenges. While consumer spending observed a slight rebound, business sentiments remain shaky, as labor costs and inflation concerns weigh heavily on businesses. Despite a modest addition to the labor market in February, unemployment rates have nudged upwards, suggesting cautious optimism. Inflation eased slightly in February, but new tariffs continue to elevate inflationary expectations, with Federal Reserve Chair Jerome Powell acknowledging an adjustment of inflation projections upwards, exacerbating economic uncertainty. Federal Reserve officials are maintaining a cautious stance, refraining from cutting interest rates amidst the stagflation threat. Clarida points out that the central bank should remain in a 'wait and see mode' while economic projections continue to show uncertainty. Divisive opinions on the impacts of the new tariffs are evident, as President Trump expresses optimism about economic growth prospects, dismissing concerns about stagflation. In summary, the economic uncertainty, augmented by the new tariffs and geopolitical challenges, calls for careful monitoring and policy adjustments. While the Trump administration bets on reciprocal tariffs to bolster domestic economy, economists caution about longer-term inflationary pressures and economic stagnation.