The s-word rippling through Wall Street and Main Street
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Illustration: Lindsey Bailey/Axios
Economic growth has flatlined so far this year. Inflation has picked up. And consumers expect both to get worse in the months ahead.
Why it matters: For the moment, it adds up to Wall Street's least-favorite "s-word," stagflation — stagnant growth mixed with elevated inflation.
- That pattern, most vividly seen in the 1970s, is particularly painful because it means people experience pain from both lack of job opportunities and higher prices.
- It also leaves the Fed and other economic policymakers with less ability to cushion the blow because a move that might address one side of the problem could worsen the other.
The big picture: The takeaway, from a slew of recent data, is that President Trump inherited a shakier economy than it seemed and is risking something worse with aggressive policy moves.
State of play: The backward-looking data lately has been distinctly stagflationary. Consumer spending in the first two months of 2025 has been soft, coming in 0.6% below its December rate (when adjusted for inflation).
- A real-time estimate of GDP published by the Atlanta Fed is now pointing to economic activity shrinking at an 0.5% rate in Q1, which ends Monday (after adjusting for gold inflows that distort economic data).
- Meanwhile, the inflation measure favored by the Fed has risen at a 4.1% annual rate in the first two months of 2025, the highest in a year.
- That all helps explain why, following a steep selloff Friday, the S&P 500 is now 9% below its Feb. 19 high.
Reality check: The GDP number appears to be depressed by a one-time surge of imports as companies try to get ahead of tariffs. Inflation has been on a bumpy path for years.
- Key measures of the job market have held up fine.
Yes, but: When it comes to what will happen next, Americans have become more downbeat on both the outlook for jobs and inflation.
- The University of Michigan's long-running consumer sentiment survey dropped for the fourth straight month in March, with the steepest declines seen in what Americans — including Republicans — expect for the future.
- Two-thirds now expect unemployment to rise over the next year, the highest share since the annus horribilis of 2009.
- At the same time, the average expectation for inflation over the next year surged to 5%, from 4.3%.
Between the lines: Usually, unemployment and inflation move in opposite directions — a bad job market at least has the silver lining of low inflation (like in 2009), or high inflation at least comes alongside plentiful job opportunities (like 2022).
- The risks from trade wars and other disruptive policies is that whatever their potential long-term gains, they will make things worse on both fronts at once.
- The Michigan survey suggests that is increasingly what ordinary Americans are expecting to see — and creates the risk that they will act accordingly.
