Stagflation is afraid of spinning when Trump's tariffs come into force and the economy slows down

The fear of growth in the economy accompanied worries about the revival of inflation, while potentially enlivening the ugly state that the US has not seen for 50 years.

Fears of “Stagfflation” came as the president Donald Trump seems determined Tariffs For virtually everything that appears in the country at the same time when many indicators indicate the withdrawal of activity.

This double threat of higher prices and slower growth causes anxiety among consumers, business leaders and decision -makers, not to mention investors who were Dropping And recently gathering bonds.

“Directional is stagiclation,” said Mark Zandi, chief economist Moody's Analytics. “This higher inflation and weaker economic growth is the result of politics – tariff policy and immigration policy.”

The phenomenon is not visible from the dark days of hyperinflation and decrease in growth in the 70s and early 1980s, primarily manifested itself primarily in “soft” data, such as surveys from moods and indexes of the supply manager.

At least among consumers, waiting for long -term inflation has been at their highest level for almost 30 years, while the overall mood sees a long -term minimum. Consumer expenses have dropped In January, according to most in almost four years, despite the fact that the income increased rapidly, according to the Trade Department's report on Friday.

On Monday Institute for Supply Manufacturing Survey Shopping managers have shown that factory activity barely increased in February, while new orders have fallen by the most in almost five years, and prices have increased by the highest monthly margin for over a year.

After the ISM report, Atlanta Federal Reserve PKNOW The continuous economic data rate reduced the forecast for economic growth in the first quarter to an annual decrease by 2.8%. If this persists, it would be the first negative increase from the first quarter of 2022 and the worst decrease from the closing of Covid at the beginning of 2020.

“Inflation expectations are growing. People are nervous and uncertain of growth, “Zandi said. “We are directional towards staglation, but we do not intend to get closer to the staglation, which we had in the 70s and 80s, because the FED will not allow it.”

Indeed, markets have a better chance that the FED will start to reduce interest rates in June and maybe this year LOP three -quarters of a percentage point from its key rate of loans as a way to move away from economic slowdown.

But Zandi believes that the Fed reaction can do on the contrary – raise rates to close inflation, in the spirit of former chairman Paul Volcker, who aggressively wandered in the early 1980s and caught the economy into a recession. “If it looks like a real staging with slow growth, they will devote the economy,” he said.

Sale of shares

Consistent factors cause waves on Wall Street, where the shares were in the sale mode this month, removing the benefits that were achieved after the Trump election in November.

Although the industrial average Dow Jones fell again on Tuesday and is turned off by about 4.5% at the beginning of March, the sale did not seem particularly hurried, and Cboe Variability indicatorThe measure of fear on the market was only around 23 on Tuesday afternoon, not much above its long -term average. The markets were good Off their minima session in afternoon trade.

“It is certainly not time to press the panic button,” said Mark Hackett, the main market strategist at Nationwide. “At this point I am still in the camp that this is a healthy resetting of expectations.”

However, not only the supplies show signs of fear.

Treasury's profitability has fallen in recent days after growing from September. The 10-year profitability of the reference note dropped to about 4.2%, from the level of about half a percentage point from the January peak and below a 3-month-old note, a reliable recession rate dating back to World War II called the inverted curve. Renki move the opposite to the price, so falling yields indicate a greater appetite for an investor for constant income securities.

Hackett said that he was afraid of the “vicious circle” of activity created by nauseating indicators of sentiments that can turn into a full crisis. Economists and business directors see tariffs that achieve prices of food, vehicles, electricity and the range of other items.

Stagflation “is certainly something to look for, more than it has been for some time,” he said. “We have to watch. This is such a fall of sentiment and such a change in the way people watch things and the level of emotions is now so increased that it will begin to influence behavior. “

The White House sees “the greatest America”

For their part, the White House officials maintain that short -term pain will be overshadowed by long -term services tariffs. Trump advertised his duties as a way to create a stronger production base in the USA, which is primarily a economy based on services.

The Secretary of Trade Howard Lutnick confirmed on Tuesday in an interview with CNBC that “short -term price movements may be. But in the long run it will be completely different. ” The expectations of market inflation are consistent with this sentiment. One record that measures The spread between the nominal 5 years of the treasury against inflationIt has been at the lowest level for almost two years.

“It will be the greatest America. We have a balanced budget. The interest rates will fall, and I mean 100 base points, 150 lower base points, “added Lutnick. “This president will provide all these things and conduct production here.”

Similarly, the treasury secretary Scott Bessent told Fox News that “there would be a transition period” and said that the administration focuses on Main Street more than Wall Street.

“Wall Street is great. Wall Street can still do well, but we focus on a small company and a consumer, “he said. “We intend to restore the balance of the economy, we will bring home production work.”

Important tips, where the economy is going, should come from the Friday report on the payroll. If the number of jobs is good, it can strengthen the view that hard data remained solid, even when the mood has changed.

But if the report shows that the labor market softens when wages persist, it can increase the talk of staglation.

“We must be perceptive. There is a potential that in itself stagflation itself, talking about it, can manifest some of them, “said Hackett, a nationwide strategist. “I am not in the camp during the period of stagnation, but this is a disaster scenario.”