Stagflation

Stagflation was a term coined in the 1970's that spoke of the combination of high inflation and elevated unemployment. The federal government was running large deficits and this hamstrung the Federal Reserve Bank for a while. When Paul Volker became Fed chairman he led the movement to squash inflation and inflationary expectations that led to spectacularly high interest rates with the prime rate reaching 20% in two separate tightening cycles.

The federal budget is now projected to have expanding deficits as far as the eye can see. Inflation is not nearly as high as it was three years ago or in the 1970's. The tariff regime will begin to manifest their impact in the coming months. The possibility of rising inflation and weakening employment is real. This likely will handcuff the Fed from being very reactive to either.