What is Stagflation? Economic Concerns
For those who believe that history repeats itself, the rise in oil prices amid a faltering economy is an ominous sign.
Economists, analysts, and investors have spent the past few days raising the alarm about stagflation, the worrisome condition in which high inflation results in a slow-growing, stagnant economy. It was last seen in the United States in the 1970s, and includes images of lines at gas stations and double-digit interest rates.
What the Experts Say
“The US is seeing a growth shock,” said Don Rissmiller, partner and chief economist at Strategas, in a March 8 note to investors, “and an inflation shock (high energy prices due to geopolitics) at the same time.”
Slower growth may be easier to manage than inflation, Rismiller wrote, adding, “We’re not increasing our chances of a US recession in 2026. We’re not stopping at 20%. Short-term, long-term movements in energy prices can be offset by lower savings rates. But it won’t take much for those odds to start rising. It’s probably a few weeks before we trade in the Middle East.”
And in a March 8 letter to investors, noted economist Ed Yardeni wrote that he was raising the likelihood of a “Meltdown scenario” (now including a 1970s-style boom) from 20% to 35%.
What Makes Oil Prices Fearful
Oil prices have risen nearly 40 percent since the start of the war in Iran, raising prices across the economy and weakening the chances of a Federal Reserve interest rate cut. Traders now almost unanimously expect policymakers to hold rates steady at their March meeting, and many bets don’t expect any cuts until much later in the year.
But concerns about the underlying economic situation persist, fueled by a shocking March 6 jobs report, which showed a loss of 92,000 jobs in February. Under normal circumstances, that kind of slow or negative growth would prompt the Fed to lower rates to stimulate demand.
On March 6, Chicago Fed President Austan Goolsbee told the Wall Street Journal that current conditions create “the kind of uneasy tumbling environment any central bank faces.”
Not All Are Convinced
Not everyone is convinced that the present is as bad as the headlines might suggest.
“I think it’s a bogeyman and I don’t see it happening,” said Peter Andersen, who manages $500 million as head of Andersen Capital Management. “I think the biggest risk now is what I call the slow grinding economy.”
In an interview with USA TODAY, Andersen explained that slow growth and high prices for everyday items are troubling. “For a lot of families that might sound like stagflation, even if that’s not the official definition,” he said.
Andersen advises ignoring any particular economic indicator to look at long-term trends. The February jobs report, for example, was concerning, but did not warrant the “whipsaw” market reaction that had occurred, he said.
What it means for employees
However, the underlying employment trend is very soft. Employers will add only 181,000 jobs in 2025, or about 15,000 a month, the Labor Department said on March 6. In an economy that is growing so slowly, and with the coming advances in AI technology, lower-level workers are likely to feel the most, Andersen said.
“The economy looks strong at 30,000 feet but on the ground it feels very uneven.”
This article first appeared in USA TODAY: What is stagflation? Concerns about the future of the economy
Reporting by Andrea Riquier, USA TODAY / USA TODAY
USA TODAY Network via Reuters Connect
