The U.S. economy is currently healthy by all measurable metrics including unemployment rate, inflation rate, consumer confidence and GDP growth. But some economists fear that may change if President-elect Donald Trump follows through on one of his core campaign promises.
CNN reported Tuesday that conversations about “stagflation” (the official economic term for a combination of stagnant economic growth paired with high inflation seen in the U.S. between 1974 and 1981) are circulating among leading economists. JPMorgan CEO Jamie Dimon warned in May that the U.S. economy could be headed for a period of stagflation in the coming years based on President Joe Biden’s economic response to the Covid-19 pandemic
“I look at the amount of fiscal and monetary stimulus that has taken place over the last five years — it has been so extraordinary; how can you tell me it won’t lead to stagflation?” Dimon said.
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But now, as Trump prepares to take office next month while promising to impose 25% tariffs on goods imported from Canada and Mexico and another 10% on Chinese goods, fears of stagflation are once again flaring up. Federal Reserve Chairman Jerome Powell said earlier this year that the period of stagflation that followed the Saudi Arabian oil embargo in the 1970s was marked by “10% unemployment” along with “high single-digits inflation and very slow growth.”
As CBS News reported last month, Trump’s tariff would cause a significant spike in the prices of many popular consumer goods imported from overseas, like laptop computers, video game consoles and smartphones. iPhones, which are made in China, could see a price increase of more than $200 per device if Trump’s proposed tariff is imposed. But business leaders are hopeful that Trump will put a timeline on his tariffs going into effect that will allow companies to reorient their supply chains in order to avoid large price hikes.
“These tariff increases, if implemented shortly after Inauguration Day, would impart a modest stagflationary shock to the U.S. economy, boosting our inflation forecasts in the near term, but also dampening our economic growth outlook,” Wells Fargo economists stated after the 2024 election. “Should this occur, the probability of a stagflation scenario in our growth model would likely increase.”
“That said, there is tremendous uncertainty about future potential policies,” the bank added.
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Click here to read CNN’s report in its entirety.
