Standing fears that Trump tariffs take effect and the economy slows down

A growth scare in the economy has accompanied concerns about a resurgence in inflation, in turn potentially rekindle a ugly condition that the United States has not seen in 50 years.

Fears about “stagflation” have come as president Donald Trump It seems determined to slap tariffs in virtually anything That comes to the country at the same time that multiple indicators point to a setback in the activity.

This double threat of higher prices and a slower growth is causing anguish among consumers, business leaders and political leaders, not to mention investors who have been throwing shares and collecting links lately.

“Directionally, it is a stagflation,” said Mark Zandi, chief economist of Moody’s Analytics. “It is the highest result of the weakest inflation and economic growth the result of the policy: tariff policy and immigration policy.”

The phenomenon, not seen since the dark days of hyperinflation and growth of sagging in the 1970s and early 80s, has been stated mainly in “soft” data, as surveys of feelings and indexes of supply managers.

At least among consumers, long -term inflation expectations are at their highest level in almost 30 years, while the general feeling is seeing minimums of several years. Consumer spending fell in January According to the maximum, in almost four years, despite the fact that income increased sharply, according to a report by the Department of Commerce on Friday.

Monday, the Survey of the Institute for the Manufacture of Supply Managers of Purchases He showed that the factory activity barely expanded in February, while the new orders fell more in almost five years and prices rose along the highest monthly margin in more than a year.

After the ISM report, the Atlanta Federal Reserve Chorlea The rolling economic data indicator reduced its projection for the economic growth of the first quarter to an annualized decrease of 2.8%. If that is maintained, it would be the first number of negative growth from the first quarter of 2022 and the worst fall from the closure of Covid in early 2020.

“Inflation expectations are acted. People are nervous and uncertain about growth,” Zandi said. “Directionally, we are moving towards stagflation, but we are not going to approach the stagflation we had in the 70s and 80s because the Fed will not allow it.”

In fact, the markets have a more priced that the Fed begins to reduce interest rates in June and could tip three quarters of a percentage point from its key indebtedness rate this year as a way to avoid any economic slowdown.

But Zandi believes that the Fed reaction could do the opposite: to increase the rates to close inflation, in the line of former President Paul Volcker, who aggressively walked in the early 80s and dragged the economy to the recession. “If it looks like a real stagflation with slow growth, they will sacrifice the economy,” he said.

Shape settlement

Convergent factors are causing waves in Wall Street, where stocks have been in chair mode this month, erasing the profits that were obtained after Trump won the elections in November.

Although Dow Jones’s industrial average fell on Tuesday and is out of 4.5% during the first days of March, the sale has not felt especially hurried and the CBOE Volatility indexAn indicator of fear of the market was only around 23 in Tuesday afternoon, not much above its long -term average. The markets were Good for its session minimums In the afternoon trade.

“This is certainly not the time to press the panic button,” said Mark Hachtt, Nationwide market chief strategist. “At this point, I am still in the camp that this is a healthy restoration of expectations.”

However, not only actions show signs of fear.

Treasury yields have been falling in recent days after emerging since September. The 10 -year reference note has fallen to approximately 4.2%, approximately half a percentage point since its January peak and below the 3 -month note, a reliable recession indicator that dates back to World War II called an inverted performance curve. The yields move opposite to the price, so the fall in yields indicate a greater appetite of investors for fixed income values.

Hacket said he fears a “vicious circle” of activity created by feelings indicators that could become a complete crisis. Economists and business executives see rates that reach food prices, vehicles, electricity and a variety of other articles.

Stagflation “is certainly something to pay attention to now, more than has been in a long time,” he said. “We have to see. This is a collapse in feeling and a change in the way people see things and the level of emotion is so high at this time that it will begin to affect behavior.”

The White House sees ‘the biggest America’

For their part, White House officials maintain that short -term pain will be eclipsed by long -term benefits rates. Trump has promoted duties as a way to create a stronger manufacturing base in the United States, which is mainly a service -based economy.

The Secretary of Commerce, Howard Lutnick, acknowledged in a CNBC interview on Tuesday that “there may be short -term price movements. But in the long term, it will be completely different.” Market -based inflation expectations are in line with that feeling. A metric, which measures The propagation between the nominal yields of the treasure at 5 years against inflationIt is at its lowest level in almost two years.

“This will be the best America. We will have a balanced budget. Interest rates will crash, and I mean 100 basic points, 150 lower basic points,” Lutnick added. “This president will deliver all those things and promote the manufacture here.”

Similarly, Treasury Secretary Scott Besent, told Fox News that “there will be a transition period” and said the administration approach is in Main Street more than Wall Street.

“Wall Street has done very well. Wall Street can remain good, but we focus on small businesses and the consumer,” he said. “We are going to rebalance the economy, we will bring manufacturing jobs to home.”

Important clues about where the economy should come from the non -agricultural payroll report on Friday. If the job count is good, it could reinforce the notion that hard data has remained solid even when the feeling has changed.

But if the report shows that the labor market is softening while the wages remain higher, that could increase the staining talk.

“We have to be observers. There is the potential that the term of stagflation only by itself, when talking about it, can express part of it,” said Hackett, the national strategist. “I am not in the We-Aa-Paliod-Off-Stagnation stadium field, but that is the disaster scenario.”