"By definition, stagflation is a stagnant economy weakened by inflation. The Federal Reserve may face a delicate balancing act: if it maintains accommodative policies to support growth, it risks fueling inflation; however, aggressive tightening to combat inflation could trigger economic stagnation. Additionally, structural changes in the global economy, including deglobalization trends, reshoring of manufacturing, and the energy transition, may create inflationary pressures while temporarily reducing productivity growth."
"Many of the ingredients that contributed to the 1970s stagflation persist today. As mentioned above, high commodity prices, massive budget deficits, and profligate government spending are just a few of the factors contributing to the turmoil. While the president is trying to curb government spending and reduce the outrageous debt levels, he is also tasked with persuading other countries to treat the United States fairly by imposing tariffs. Some feel that could also lead to stagflation-like conditions."
Stagflation combines stagnant growth with persistent inflation, and signs suggest a renewed risk as inflation remains sticky while growth softens. The Federal Reserve faces a delicate balance: accommodative policy could fuel inflation, while aggressive tightening could induce stagnation. Structural shifts—deglobalization, reshoring, and the energy transition—can raise inflationary pressures and temporarily slow productivity. Persistent factors include high commodity prices, large budget deficits, and expansive government spending, with tariffs potentially exacerbating conditions. Dividend-paying companies with long histories of payout increases in value, commodities, defense, REITs, consumer staples, and utilities sectors often perform relatively well during stagflation and merit consideration.
Read at 24/7 Wall St.
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