You’re probably familiar with inflation, but how much do you know about stagflation? It’s a term from the past, but it could seriously impact your future, from job prospects to your family grocery budget.
The word stagflation is a mash-up of two words: inflation and stagnation. It happens when prices keep going up (inflation), and it becomes harder to find a job because the economy has slowed down (stagnation).
The term hasn’t been used much in the U.S. since the 1970s, but economists, including Fordham’s Giacomo Santangelo, are talking about it again due to several warning signs.
When Prices Go Up
Inflation spiked to 7% in 2021 during the pandemic, but has cooled significantly since then. Last month, inflation measured 2.4%, according to government data. That’s certainly better than 7%, but ideally, the Federal Reserve would prefer it to be lower. Lower inflation means goods remain affordable, which makes it easier for consumers to weather economic downturns.
When President Trump announced tariffs on U.S. imports in April, it sparked concerns that they would cause inflation to rise again. The Fed seemingly validated those concerns on June 18, when it predicted that consumer prices would rise 3% this year.
Santangelo said that didn’t surprise him. He noted that although the consumer price index, which tracks the cost of living for the typical household, only went up slightly last month, there’s generally a lag time before things like tariffs make an impact. He expects we’ll feel that impact soon.
“The tariff policies and deportations that have been put in place, and the current budget bill being debated in Congress, are predicted to create inflation,” he said.
When the Economy Doesn’t Grow (Stagnation)
At the same time, the country’s economic forecast is looking hazy. Just today, it was announced that U.S. Gross Domestic Product (GDP) had shrunk 0.5% in the first quarter of 2025.
Even before the U.S. attack on Iran increased economic uncertainty, economists predicted it would decline again, leading to stagnant economic growth or even a recession.
Combine that with inflation, and you get stagflation, which is very much on the minds of policymakers in Washington, D.C.
“Federal Reserve Chair Jerome Powell said in May that if the large increases in tariffs are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment–the three factors that lead to stagflation,” said Santangelo.
He noted that the Fed has responded by maintaining interest rates at around 4.5% to mitigate inflation. It’s also revising economic projections to reflect slower growth and higher inflation through 2025. Santangelo said the goal is not to contribute to either inflation or recessionary pressures, so much as to steady the economy.
How to Prepare for a Downturn
Santangelo said there are things Americans can do to prepare for potential economic turmoil.
“I would eliminate high-interest debt like credit cards and home equity loans and try to come up with budget flexibility, because if stagflation comes, you’re going to need room,” he said.
“If you feel you have enough time to establish an emergency savings account, try to put that savings into a high-yield account. And maybe think about some sort of diversified income source.”
