Trump Tariffs Will Fuel Stagflation As Economy Will Get 'Two Bad Tastes At The Same Time'— 'Rising Unemployment And Rising Inflation'
Economist Justin Wolfers warns that proposed tariffs could lead to stagflation, characterized by rising unemployment and inflation. He highlights troubling signs in the labor market, with the unemployment rate at a four-year high and job growth declining. Wolfers links tariffs to potential increases in consumer prices. Similarly, LPL Financial's chief economist Jeffrey Roach expresses concerns about a combination of rising inflation and slowing growth, indicating a risk of 'stagflation-lite.' Meanwhile, stock indices like SPY and QQQ saw gains amid these economic concerns.
Economist Justin Wolfers is sounding the alarm on the potential for stagflation, warning that proposed tariffs could inflict a painful combination of slowing growth and rising prices on the U.S. economy.
‘Two Bad Tastes At The Same Time’
In a recent interview, the University of Michigan professor cautioned that Americans could soon get "‘two bad tastes at the same time'—rising unemployment and rising inflation."
Wolfers explained that the ingredients for this challenging scenario are already present. He broke down the dual nature of stagflation, describing it as a mix of economic stagnation and persistent inflation.
Breakdown Of Stagflation
"STAG, stagnation, a slower economic growth," Wolfers stated, pointing to troubling signs in the labor market. He noted that the unemployment rate is at its "highest level in four years" and that job growth is "really falling off a cliff."
The second part of the equation, he explained, is the "flation is inflation." While the current 3% inflation rate isn't a reason to panic, Wolfers warned that new trade policies could easily worsen the situation.
"As tariffs start to push that higher, we're going to get two bad tastes at the same time," he reiterated, linking the proposed import duties directly to the risk of higher consumer prices.
Stagflation-Lite Concerns Grow
As the market expects the August CPI and PPI reports this week, Jeffrey Roach, the chief economist for LPL Financial, reiterated similar concerns as Wolfers after the July inflation print.
"Despite the increase in core inflation, we expect the Fed to cut rates next month as they pay closer attention to the weakening labor market," said Roach. He warned that the combination of hotter inflation and slower growth is "setting things up for stagflation-lite."
The simultaneous pressure of a cooling job market and accelerating inflation creates the difficult economic condition known as stagflation, a concern that economists have been monitoring for some time.
Price Action
The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose on Monday. The SPY was up 0.25% at $648.83, while the QQQ advanced 0.49% to $578.87, according to Benzinga Pro data.
On Tuesday, the futures of the S&P 500, Dow Jones, and Nasdaq 100 indices were trading higher.
- Stagflation-Lite Concerns Grow As July CPI Shows Persistent Core Inflation But Markets Bet On September Rate Cut
Photo courtesy: Joshua Sukoff / Shutterstock.com
