WARNINGS about US Economy Take Center Stage
THE ECONOMY…
Economic concerns are mounting in the United States as President Donald Trump’s newly implemented tariffs begin to take effect, raising fears of an outcome worse than a traditional recession: stagflation. Mark Zandi, chief economist at Moody’s Analytics, warned that the combination of higher prices driven by tariffs and a simultaneous slowdown in economic growth could lead to this dreaded scenario, characterized by stagnant economic activity paired with persistent inflation. The Dow Jones Industrial Average plummeted 1.5% by the end of trading on Tuesday, following a significant drop the previous day, erasing much of the market gains seen since Trump’s election victory in November 2024, signaling investor unease over escalating trade tensions with major U.S. trading partners.
The article highlights a troubling mix of economic indicators fueling stagflation fears. Inflation rose to an annual rate of 3% in January, exceeding the Federal Reserve’s 2% target, while consumer spending dropped by the most in nearly four years despite rising incomes. Manufacturing data further darkened the outlook, with factory activity barely expanding and new orders declining at the fastest pace in almost five years, prompting the Atlanta Federal Reserve to project a GDP contraction of 2.8% for the first quarter of 2025. This potential shrinkage, if realized, would mark the first economic downturn since 2022 and the steepest since the initial COVID-19 lockdown in 2020, intensifying concerns about a policy-driven economic slump exacerbated by tariffs and immigration restrictions.
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Amid this volatility, consumer sentiment is wavering, with long-term inflation expectations reaching their highest level in nearly three decades. Zandi emphasized to CNBC that while the current trajectory points toward stagflation, it won’t mirror the severe episodes of the 1970s and 1980s, as the Federal Reserve is unlikely to let it spiral out of control. Markets are currently split on the Fed’s next move, with a 50% chance of interest rate cuts by June, though Zandi suggests the central bank might instead raise rates to combat inflation, a move that could further dampen growth. This precarious balance underscores the broader anxiety among consumers, business leaders, and policymakers as the U.S. economy navigates uncharted waters, with the specter of stagflation threatening to upend the post-election economic optimism.
MY TAKE: These are the same people who told you WW3 would start if Trump beat Hillary in 2016, and that the economy would crash. None of that BS took place. The tariffs are like a diet. It’s not easy giving up the fat for the healthy stuff, but in 90 days you will be happy you did.