Is Stagflation Imminent for the US Economy?
- Ankur Sachdev
- Mar 26
- 3 min read
Key Highlights
Economists hint that the US economy could experience stagflation.
Stagflation is when inflation and joblessness are high.
US President Donald Trump is likely to implement higher tariifs effective April 02, 2025.
The US economy is very likely looking to welcome stagflation. That is a situation where a country sees high inflation along with high joblessness. Stagflation was earlier considered a fictional situation. It was only later, around the 1970s, when economists gave it an official confirmation. The situation in the 70’s was a reflection of rising oil prices. In 2025, it could be because of the tariff implementation by the Donald Trump Administration.
A sign of relief is that economists are somewhat certain that the situation under the Trump Administration would not replicate the conditions of the 1970s. Nevertheless, stagflation is a concern no matter the extent to which it happens, or when it happens.
Stagflation for the US Economy?
There are only chances that the US economy could experience stagflation. But, those chances are increasing as the time to implement the new tariff rate inches closer. This is not the first time economists have shown a red flag. They were vocal even when US President Donald Trump was beginning to underline his intention of booking reciprocal tariffs for other countries. It was said, and is still believed, that the measure would trigger a global trade war.
Donald Trump and his administration are confident that harm, if any, will be short-lived. Trump has said that they are looking at their measures as a solution for long-term relief. Meaning, anything bad that happens will happen but it will eventually unfold into a better America.
A report by Reuters has cited Federal Reserve officials who have said that even if other measures look comfortable, or react late, one sensitive factor that will not back down is sentiment. This is a hint that investors may not want to wait for any other element to change its color. They would rather start pulling investments right from the point when things trigger a transition to the red column.
There is a worry about the repetition of the 1970s because that was a decade when the Misery Index was at its peak. The Misery Index, as per the same report by Reuters, is formed with a combination of inflation and unemployment rates. In other words, it aims to showcase stagflation. The higher the Misery Index, the higher the stagflation is.
The Misery Index was last seen hovering below the safety line. Hence, officials believe that even if the US goes through stagflation, it will not be a repeat of the 1970s.
Donald Trump and Tariffs, What Happens on April 2?
Food banks across the US are reportedly suffering from a shortage of supplies as the USDA funding worth $1 billion has been cut by the Trump Administration. This could soon start hitting those, especially low-income Americans, who rely on food supplies every day. All this aside, the focus remains on making America great again by using Trump’s favorite weapon - tariffs.
Fair trade is only obvious among nations but it is always with an added component of justifications. For Donald Trump, increasing tariffs for other nations is justified because they have charged the US higher tariffs for a long time. So, hitting back is what Trump and his administration are planning to do.
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Come April 02, 2025, Donald Trump will mostly implement higher tariffs. A few nations could be placed in the exempted category but every other country will face the wrath of the US. Talks around the town are that he could do so with a 2-step approach - simultaneously, it is being said that he could just go ahead with implementing higher tariffs.
What to Expect for the US Economy?
Donald Trump has already said that the short-term situation could appear bad but any steps his Administration takes is in the direction of bringing down inflation and increasing employment. Economists believe that the 1970s would not be repeated but stagflation is still on the table.
As for the long-term, everyone is waiting for Trump to take a step so that charts and graphs can be penned accordingly. There is always uncertainty with Donald Trump and the only practice one can follow is to wait & watch.
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