As US edges closer to stagflation, economists blame Trump policies | US economy

A strange time for the US economy. Prices are increasing, business growth stopped, uncertainty everywhere and stock exchanges broke the highest record. Against this background, the last terrible word used in the 1970s is said again: Stagflation.

Stagflation is the term that describes “stagnant” growth with the “inflation of prices. This means that companies produce and hire less, but prices are still increasing. A scenario that some economists say they might be worse than stagnation.

In the 1970s, when the US saw a long -term stagflation period for the last time, it was during the oil shock crisis. While higher oil prices have increased inflation, unemployment increased as consumers reduced expenditures.

For now, the US economy has not experienced stagflation, but the latest data has shown that it was closer to it.

After Donald Trump’s tariffs were announced in spring, official data initially claimed that the economy shook them. While new jobs are added to the economy at a stable speed, inflation has fallen to 2.3% – the lowest since 2021.

However, when the new labor market data were released in August, it was understood that there was an effect on slow recruitment to look slow in the data. The first business figures for May and June were revised by 258,000. Although the figures in July and August were a little stronger, it was still a significant decline compared to the beginning of the year.

In the meantime, inflation began to return in April. In August, the annual inflation rate reached 2.9%, the highest since January.

Brett House, an economist at Columbia Business School, said that economists’ surveys showed expectations for a stagnation for the next year at the lowest level of three years in January. Growth was expected to remain intact and inflation was expected to continue to alleviate.

“Both of these expectations were reversed by a cluster of policies and irregular practices, H says House. “We have seen the growth forecasts that were largely cut in the rest of this year and saw inflation forecasts increased.”

In other words, the economy has become both more stagnant and inflationary – stagflation.

Economists point to two policies from the White House, which brings the economy closer to stagflation.

Trump’s pressure on migration reduced the number of existing workers and also increased the cost of recruitment. And in the case of prices, companies began to have a significant effect as the tariff costs to consumers.

Investors are banking in the hope that the Federal Reserve reduces interest rates next week, but the future of the US economy remains unclear.

In a close -watched speech of Fed’s Fed’s Jackson Hole Symposium last month, FED President Jerome Powell summarized the “changing risk balance” that emerged during the summer.

“Although the labor market seems in balance, it is an interesting type of balance caused by a significant slowdown in both the supply and demand of the workers, P said Powell said. In the meantime, “Higher tariffs began to increase prices in some categories of goods.”

Stagflation weakens the Fed’s ability to balance the economy. Adjustment of interest rates can help balance unemployment and inflation, but only one rises. When inflation rose to 9.1% in the summer of 2022, increasing interest rates helped to decrease prices. Inflation fell below 2.5%, but the unemployment rate increased from 3.4% in 2023 to 4.3% last August.

During a stagnation, the FED has more power that economists define as a slow economic activity period. In 2020, the FED reduced interest rates to zero to encourage the economy when Covid Lockdowns caused a stagnation with great unemployment.

Since we have not yet seen Stagflation, the Fed movement rates next week can help the labor market without increasing prices. But the movement comes with uncertainty.

“Stagflation is, but at a very slow speed, because companies are waiting to pass [the cost of tariffs]Brow said Sebnem Kalemli-Ozcan, the economist of the University of Brown. ” Companies will begin to see that demand is increasing and say, “Oh, now I can transfer my higher costs to more consumers”. … Then we will see inflation. “

Analysis of Goldman Sachs, US consumers already absorbed 22% of the cost of tariffs and the current tariffs continue to finally get 67%, he said.

If prices continue to increase and the labor market continues to slow down, Stagflation will be strengthened.

“If [stagflation] This is happening, because people will lose their jobs because people will lose their jobs, unemployment will increase, and people looking for jobs will be very difficult to find jobs. This will be the difficult part, ”he said.

Yale Budget Laboratory estimated As Trump’s tariffs become what the tariffs call the laboratory “indirect tax ,, that the number of Americans living in poverty can increase at least 650,000.

The Trump administration called on Americans to be patient with the effects of tariffs and claimed that the latest economic data were “fraudulent karşı against the president.

In the early this month, Trump said, olur Whatever the real numbers I mentioned, but it will be a year later, ”Trump said. “You will see the job numbers as our country has never seen.”