{"id":52953,"date":"2025-08-07T21:28:11","date_gmt":"2025-08-07T21:28:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/52953\/"},"modified":"2025-08-07T21:28:11","modified_gmt":"2025-08-07T21:28:11","slug":"stagflation-economys-worst-case-scenario-looking-more-likely","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/52953\/","title":{"rendered":"Stagflation: Economy’s Worst-Case Scenario Looking More Likely"},"content":{"rendered":"

The worst-case scenario<\/a> for the US economy is looking a lot more likely.<\/p>\n

Investors have recently taken in a slew of data points that suggest the economic environment is rolling closer to stagflation<\/a> \u2014 a dreaded scenario where inflation rises while economic growth slows and unemployment spikes.<\/p>\n

That situation is thought of as even worse for policymakers to resolve than a typical recession, as high inflation prevents the Federal Reserve from cutting interest rates<\/a> to spur economic growth.<\/p>\n

Stagflation first floated onto Wall Street’s radar after President Donald Trump introduced his sweeping array of tariffs on April 2<\/a>. Tariffs<\/a> are thought to stoke inflation, as companies are likely to pass along at least part of the cost of import duties by raising prices<\/a>. Meanwhile, they can slow growth by raising costs for businesses that rely on imported inputs.<\/p>\n

Now, the trend is beginning to show in the data, according to economic forecasters. Here are the stagflation warning signs they were watching in the past week:<\/p>\n

Fed’s preferred inflation gauge was hotter than expected<\/p>\n

Personal Consumption Expenditure\u00a0inflation<\/a>, the Fed’s preferred inflation measure, rose 2.6% year-over-year in June<\/a>, above the 2.5% year-over-year increase that economists were expecting and a tick up from May’s 2.4% rate.<\/p>\n

“The Fed’s key measures of inflation are no longer in obvious decline relative to what we saw to start the year, and we are still about 80 basis points above the Fed’s inflation target on most of the critical inflation gauges. The US economy appears to be hitting a mild form of stagflation,” Skanda Amarnath, a former Fed economist and the executive director of Employ America, wrote in a note.<\/p>\n

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The risk of stagflation could keep climbing as markets assess the full impact of Trump’s tariffs<\/a>, according to Emily Bowersock Hill, the CEO of Bowersock Capital Partners. After multiple delays, a broad set of tariffs on dozens of countries<\/a> finally went into effect on Thursday.<\/p>\n

“A trade war is a stagflation<\/a> shock,” Bowersock wrote in a July note, adding that companies could hike prices through the third and fourth quarters this year. “While this may be partially offset in the short term by deregulation and tax cuts, the end result will be lower growth and higher inflation.”<\/p>\n

Hiring is slowing<\/p>\n

The job market<\/a> sputtered in July, with the US adding 73,000 jobs for the month, lower than the 100,000 payrolls economists were expecting. Meanwhile, job gains over May and June were down by a collective 258,000, sending a major signal that the labor market has been significantly weaker than initially thought.<\/p>\n

“This morning’s massive NFP revisions, concentrated in tariff-exposed sectors now flag that our ‘stagflation lite’ scenario is materializing,” economists at RBC wrote in a note last week, referring to the downward payrolls revision for the last two months.<\/p>\n

They added that the stagflationary dynamic is unfolding because the uncertainty surrounding Trump’s trade policy is choking off hiring.<\/p>\n

The bank said that it expected future labor market data in the US to come in weak.<\/p>\n

Services prices are moving higher<\/p>\n

The Institute for Supply Management’s services price index, a measure of how much Americans paid for services, rose to 69.9%, up from June’s 67.5%.<\/p>\n

That marks the 98th straight month prices in the services sector have climbed, and the highest index reading since October 2022, the ISM said in its latest Services PMI<\/a>.<\/p>\n

Torsten Sl\u00f8k, the chief economist at Apollo Global Management, said the increase was a sign that inflation in the services side of the economy was “intensifying,” which could spark upside risk to headline inflation over the coming months.<\/p>\n

“At the same time, employment growth is slowing down and the unemployment rate is rising. The sources of this stagflation impulse are tariffs, deportations, and the depreciation of the dollar,” Slok wrote in a note to clients. “The bottom line is that the stagflation<\/a> theme in markets is intensifying.”<\/p>\n

More Americans are making unemployment claims<\/p>\n

More Americans filed for unemployment<\/a> than expected in the last week, flashing another sign of weakness in the economy.<\/p>\n

Initial jobless claims<\/a> surged to 226,000 in the week ending August 2, according to data from the Labor Department, above the 221,000 initial claims economists were expecting.<\/p>\n

Meanwhile, continuing claims \u2014 or the number of Americans filing a repeat application for unemployment benefits \u2014 rose to 1.97 million. That’s the highest number of recurring applications the US has seen since the pandemic.<\/p>\n","protected":false},"excerpt":{"rendered":"The worst-case scenario for the US economy is looking a lot more likely. Investors have recently taken in…\n","protected":false},"author":2,"featured_media":52954,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[45,49,48,2445,13794,46,1823,16866,135,7699,3526,100,7480,173,33841,863,3277,182,35788],"class_list":["post-52953","post","type-post","status-publish","format-standard","has-post-thumbnail","category-markets","tag-business","tag-ca","tag-canada","tag-economic-growth","tag-economist","tag-economy","tag-fed","tag-increase","tag-inflation","tag-june","tag-market","tag-markets","tag-month","tag-sign","tag-stagflation","tag-tariff","tag-trump","tag-us","tag-worst-case-scenario"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/52953","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=52953"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/52953\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/52954"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=52953"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=52953"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=52953"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}