Experts see higher stagflation risks. Here’s what it means for your money

Key Takeaways:

• Economists warn that stagflation—a mix of high inflation and slow growth—is becoming a significant risk due to current policies.
• The Trump administration’s tariff policies are contributing to economic uncertainty and higher inflation.
• Today’s stagflation risk differs from the 1970s, with changes in energy independence and labor dynamics.
• Consumers are advised to manage debt and build emergency funds to prepare.
• Policy changes could mitigate stagflation risks and alter the economic forecast.

Stagflation Fears Rise Amid Tariff Policies

Americans, already weary from high prices, now face the looming threat of stagflation—a troubling economic condition characterized by rising inflation, slowing growth, and high unemployment. Economists are sounding the alarm, attributing the heightened risk to the Trump administration’s tariff policies.

Understanding Stagflation

Stagflation combines three economic challenges: increasing inflation, stagnating economic growth, and rising unemployment. The United States grappled with this phenomenon in the 1970s, a decade marked by soaring oil prices, costly overseas conflicts, and a decline in manufacturing jobs. During that period, Americans endured long lines at gas stations and unprecedented prices at the pump, surpassing $1 per gallon for the first time.

While the 1970s stagflation was often linked to oil price shocks, some economists argue that monetary policy fluctuations were the true culprits. The Federal Reserve, under Chairman Paul Volcker, eventually implemented strict monetary policies to curb inflation, leading to a severe recession and unemployment rates exceeding 10%.

Current Causes of Stagflation Risk

Today’s economists see parallels but also significant differences. “The Trump White House tariff policy has certainly increased the risk of both higher inflation and lower growth,” said Brett House, professor of professional practice in economics at Columbia Business School. These tariffs have injected uncertainty into the markets, affecting both corporate investments and consumer confidence.

“It’s a more pronounced risk than at any time over the past 40 years,” noted Greg Daco, chief economist at EY Parthenon and vice president at the National Association for Business Economics. The combination of policy-driven inflation and slowing growth is creating an environment ripe for stagflation.

Diane Swonk, chief economist at KPMG, observed signs of concern among consumers: “We’re seeing that kind of whiff of stagflation, where people are less secure about their jobs and they’re more worried about inflation down the road.” KPMG’s current forecast anticipates a shallow recession, with inflation peaking at the end of the third quarter.

Stagflation in Today’s Economy

While the risk is reminiscent of past challenges, economists emphasize that stagflation would manifest differently today. Dan Skelly, head of Morgan Stanley Wealth Management market research, points out that the U.S. is no longer heavily dependent on foreign oil, reducing vulnerability to energy price shocks.

Additionally, the influence of labor unions has diminished over the decades. “Unions, which prompted wage price spirals back then, are no longer as big a portion of the private work force today,” Skelly explained. However, uncertainties around tariffs continue to affect confidence and spending.

Preparing for Potential Stagflation

Experts advise consumers to take proactive steps to safeguard their finances. Sarah Foster, economic analyst at Bankrate, recommends focusing on budgeting, paying down high-interest debt, and building an emergency fund. “It is absolutely wise right now to buy something that you know could be impacted by tariffs that you’ve already been budgeting for,” she said, cautioning against unnecessary panic buying.

Higher interest rates offer an opportunity to earn better returns on savings through high-yield, FDIC-insured accounts. Managing expenses and reinforcing financial safety nets can help households navigate the uncertain economic terrain.

Potential for Economic Forecast Changes

There’s still hope that stagflation can be avoided. In 2022, a survey found that “80% of economists said stagflation was a long-term risk.” Yet, strong economic growth and a robust labor market mitigated those fears at the time. Greg Daco suggests that reducing policy uncertainty and reevaluating tariff strategies could lessen current risks.

“Much of the risks popping up in today’s economic forecasts are the result of White House policies,” economists say. Brett House underscores that the economy entered 2025 performing well and that recent policy shifts have introduced unnecessary threats. Adjustments by the administration could prevent stagflation from taking hold.

Conclusion

As the specter of stagflation looms, experts emphasize the importance of awareness and preparedness. By understanding the risks and taking practical financial steps, consumers can better position themselves to weather potential economic challenges. Policy decisions in the coming months will play a crucial role in determining the nation’s economic trajectory.