Will Stagflation Return in 2025?

Investing
1

It happened in the 1970’s and it wasn’t fun. Are we setting up for repeat of Stagflation?

2

“Stagflation” has definitely been raised as a possibility. If it comes back, the Misery Index (unemployment rate + inflation rate) will surge.

Based on targeted 200,000 Federal layoffs, and many private layoffs taking place at this time, I think unemployment will go up in 2025.

Personally, I’m torn about inflation. Tariffs are inflationary, sending labor back home outside of the US is inflationary… but a recession is disinflationary. In the last month the 5-year US TIPS bond breakeven inflation rate has declined from 2.6% to 2.5%. It’s not always right, but it’s an unbiased real-time indicator about how market participants with skin in the game are viewing inflation over the next five years.

I think recession is a real possibility in 2025, but not a certainty, and inflation? Who knows. But a slowdown in 2025, really, really likely. A stock market bust worse into -20% bear market? Likely.

3

Historically stagflation came about for these reasons:

  1. Government policies, like hindering industrial output and tampering with the money supply.
  2. Supply shocks, like a sharp increase in energy and/or commodity prices.
  3. High unemployment.

All of those things appear to be a real possibility.

4

Hard to predict what will happen. I am concerned about some unforseen disaster – a natural disaster, another pandemic, an attack… We are not prepared to deal with such disasters, especially if relevant departments are being shuttered.
In ~2018, the global pandemic response team was downsized and supposedly spread out into other departments. Bottom line - we were unprepared for the pandemic.

I fear the same for a future unforseen disaster.

5
6

There is currently no recession in the cards from the actual data, per the Dallas Fed:

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7

Time will tell.

8

I learned something recently… the very very bad GDPNow real-time GDP print of -2.8% was an anomaly… caused by the furious importation of things into the USA ahead of tariffs, especially London Gold moving to New York. Imports apparently decrease the GDP number. So it may not be as bad as first thought. But.. time will tell, indeed.

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9

“Confidence that the economy will continue to grow is fading, [ESPECIALLY] with a new management team in place.” Fixed the obvious typo. :smiley:

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