The Federal Reserve faces a difficult challenge balancing two opposing economic threats: rising prices due to new tariffs and increasing unemployment.
This combination risks “stagflation” – a dangerous economic condition where inflation increases while job growth weakens.
Fed Chairman Jerome Powell has chosen a wait-and-see approach for now, but history shows stagflation is extremely difficult to resolve.
Similar to the 1970s crisis, today’s economy faces external price shocks (tariffs instead of oil prices) while consumers are already struggling.
For investors, stagflation creates a challenging environment where both stocks and bonds typically perform poorly.