"When we use the term stagflation, I always have to point out that that was a 1970s term, at a time when unemployment was in double figures and inflation was really high. That's not the situation we're in. What the Fed is dealing with is the same thing they've dealt with for the last year, tension between the goals—inflation stuck well above 2% and a labor market that's quietly deteriorating."
"You've got a sort of zero employment growth equilibrium. That's balance, but it does have a feel of downside risk, and it's not kind of a really comfortable balance. With immigration sharply curtailed, both labor supply and demand have fallen in tandem, keeping the unemployment rate stable at 4.4% even as hiring has flatlined."
"Core PCE inflation is running at 3%, with Powell saying he blamed roughly half to three-quarters of a percentage point of the overshoot directly to tariffs. Meanwhile, the February jobs report showed employers cutting 92,000 positions, and once you adjust for the margin of errors in the data, private-sector job creation has effectively hit zero."
Fed Chair Jerome Powell rejected comparisons to 1970s stagflation, noting current conditions differ significantly from that era's double-digit unemployment and high inflation. However, Powell acknowledged the economy faces a mini-version of stagflation characterized by tension between competing goals: core PCE inflation running at 3% (with tariffs accounting for roughly half to three-quarters of a percentage point) and a weakening labor market. The February jobs report showed employers cutting 92,000 positions, with private-sector job creation effectively at zero after adjusting for data margins of error. Powell described this as a fragile equilibrium rather than a crisis, where curtailed immigration has reduced both labor supply and demand proportionally, maintaining the unemployment rate at 4.4% despite flat hiring. The Iran conflict has further complicated this balance, with oil prices surging and gas prices rising nearly a dollar per gallon in four weeks.
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