A haunting memory of the 1970s, stagflation, has been resurfacing in financial circles for the better part of a year. While people have periodically worried about it at various times over the last 50 years at times of economic uncertainty, concern is ratcheting up. The reasons include President Donald Trump’s trade policies, the potential for higher deficits from extended tax cuts, and inflation that has started to climb again.
"Stagflation has definitely re-emerged as a possibility because we have these policies that could hurt consumer demand even while persistent inflation limits the Federal Reserve's ability to maneuver," Jack McIntyre, portfolio manager for Brandywine Global's fixed income strategies, told Reuters. "It's not a zero-possibility scenario anymore, by a long shot."
"What continues to concern us more than the risk of inflation is stagflation," Tim Urbanowicz, chief investment strategist at Innovator Capital Management, also said to Reuters. "There is that sticky base of inflation to contend with but on top of that, tariffs have the potential to slow down the economy by becoming a tax on consumers and weighing on profits and economic growth."
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