Sticky inflation and rising unemployment have raised concerns that stagflation could return.
And that could be a problem for President Donald Trump, who regained the White House in the 2024 election on a platform of lower prices and broad prosperity.
“It’s the worst of both worlds where you have higher prices and lower growth,” said Jai Kedia, a research fellow at the Cato Institute’s Center for Monetary and Financial Alternatives.
For some, stagflation brings back memories of the 1970s — a decade of long gas lines and paychecks that couldn’t keep up with grocery bills.
Heavy federal spending from the Great Society and the Vietnam War contributed to rising prices.
Former President Richard Nixon imposed wage and price controls in 1971 to stabilize a slowing economy. The move helped him win reelection but failed to curb inflation. In 1973, the stock market crashed, and the Arab oil embargo caused a supply shock that left Americans waiting hours for fuel. Inflation hit 12% in 1974, and unemployment hit 7%.
Former President Gerald Ford’s “Whip Inflation Now” program did little to stop the bleeding. When Jimmy Carter became president in 1977, unemployment and inflation remained high.
The Federal Reserve slowly began raising interest rates to fight inflation, but dramatically raised rates when the Iranian Revolution caused the second oil shock in 1978. It wasn’t until 1982 that rates began a steady downward trend as the economy improved under former President Ronald Reagan.
Today’s conditions are far milder: unemployment is 4.3% and inflation is 2.9%, both well below the levels of the 1970s.
But both statistics are higher than they were in 2024, raising fear that stagflation may be creeping its way into the economy.
Multiple economists who spoke to the Washington Examiner expressed concern about America’s fiscal health and what could happen in the future.
Jessica Reidl, a senior fellow at the Manhattan Institute, blamed tariffs for pushing up prices. She said those tariffs could slow down the economy, “particularly later in the year when more businesses exhaust their abilities to eat the cost of tariffs or rely on pre-tariff imports.”
Kedia said stagflation is a real possibility because very few new jobs have been created and the unemployment rate continues to rise. He said he’s also bothered by the latest inflation reports showing prices are above the Federal Reserve’s 2% target rate.
Other economists agreed that inflation is causing undue stress on the country.
Dr. Veronique de Rugy, a senior research fellow at the Mercatus Center, said the current environment is the delayed consequence of pandemic-era spending policies, where the federal government spent over $6 trillion while the Fed kept interest rates low. That caused the worst of both worlds, she said.
John H. Cochrane, a senior fellow at the Hoover Institution, compared inflation to a cockroach infestation.
“If you’re down to the last few, you’re not really done,” he said.
Cochrane said he’s worried the Fed is moving toward stimulus, with lowered interest rates and looser monetary supplies, without anchoring expectations.
Those concerns grew as the Fed sent conflicting signals on monetary policy.
After holding rates steady for most of the year, the Fed changed policy in September with a .25 percentage point cut, following months of pressure from Trump. Fed Chairman Jerome Powell declined to suggest more cuts were on the horizon, but CME FedWatch, a tool that tracks Fed interest rate changes, has speculated that two more rate cuts will happen this year.
Chicago Bank President Austan Goolsbee illustrated the central bank’s shifting tone.
Goolsbee, one of former President Barack Obama’s top economic advisers, said in April that tariffs were giving the economy a “stagflationary shock.” He dismissed 1970s-style stagflation concerns two months later, because he “didn’t see any prospect [of it] in the near-term.”
Two weeks after voting for an interest rate cut, Goolsbee warned, “Inflation has been rising for several months.”
When asked by reporters about possible future decisions, Powell admitted, “It’s challenging to know what to do.”
The uncertainty at the Fed has put investment firms at odds over the economy’s direction.
Dario Perkins at TS Lombard said he isn’t that worried. While he advised the Trump administration to “stop doing what it is doing,” Perkins said nothing is fundamentally wrong with the economy.
“Fed can turn it around quickly,” he said.
Other investors aren’t so sure.
Moody’s Analytics Chief Economist Mark Zandi said he believes the country is suffering from an economy stuck in a mixed bag. He wrote on LinkedIn that recession risks have receded but remain “uncomfortably high” due to revised job statistics that show the United States is experiencing what he called a jobs recession.
“The firewall holding back a broader recession is fragile,” he wrote.
Apollo Chief Economist Torsten Sløk wondered if 2025 is becoming a repeat of 2021 because prices are rising at a similar rate.
“Is a second inflation mountain emerging?” he wrote in The Daily Spark newsletter on Oct. 6. Sløk previously mentioned that the U.S. economy is strong but expressed concern about inflation. He encouraged the Fed to raise rates instead of cutting them.
That may be easier said than done.
The White House has continued to put intense pressure on the Fed to lower interest rates. Trump wrote on Truth Social that Powell needs to lower rates more than he had in mind because “HOUSING WILL SOAR!!!”
Trump’s top ally at the Fed, Stephen Miran, voted against the quarter-point rate cut because he wanted a larger one. Miran has argued that rates need to be two percentage points lower than they are currently, which he said will increase hiring.
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That may not be enough to prevent the U.S. from sliding into a recession. Zandi suggested nearly a third of U.S. states are currently in or near a recession, including California and New York, which account for one-fifth of the U.S. gross domestic product.
“Their stability is crucial for the national economy to avoid a downturn,” he said.
Taylor Millard is a freelance journalist who lives in Virginia.