For many voters, President Donald Trump symbolized the potential for an improvement in their economic situation.
However, just a few months into his second term, Americans are being prompted to adjust their expectations regarding the course of the U.S. economy — both in the immediate and distant future.
Instead of revitalizing the economy, Trump’s unconventional and unprecedented economic strategies, including tariffs, tax reductions, and spending cuts, are raising concerns about the possibility of not only a recession but also stagflation: persistent inflation without accompanying growth.
This scenario would represent the worst of both worlds: consumers facing rising costs while job opportunities and wages diminish.
Investors, along with polling agencies reminiscent of the 1970s era, continue to bear the scars of the stagflation that characterized that period. It was marked by an average inflation and unemployment rate of around 6% throughout the decade, laying the groundwork for an economic “malaise” in America that ultimately hindered Democratic President Jimmy Carter’s re-election bid.
These sluggish economic conditions extended well into the first term of Carter’s rival, Ronald Reagan. Indeed, at least one commentator has begun drawing parallels between Reagan and Trump as presidents who took office during times of economic decline.
Charles Gasparino, a business columnist at the New York Post and a Fox News contributor, recently articulated this comparison.
“Disregard the panic,” he remarked on Monday, referring to the significant market decline witnessed in recent weeks.
He argued that fiscal and monetary stimulus has turned into a sort of “heroin” for the economy, likening the current adjustments the U.S. is facing to the early years of Reagan’s administration.
David Paul Morris / Bloomberg via Getty Images file
“The markets despised the unpredictability,” he noted. “The economy endured significant challenges during a three-year transition as Reagan’s team implemented tax cuts and minimized government involvement. As history has demonstrated, it ultimately benefited American workers as well as the wealthier investors in the stock market.”
It’s a viewpoint steeped in ideology and emotion that many mainstream economists argue does not hold up to scrutiny or fundamental economic principles.
In a note to clients on Sunday, analysts at Evercore investment firm highlighted the possibility that the United States could find itself in a stagflationary phase due to Trump’s tariff policies and the initiatives led by Elon Musk’s Department of Government Efficiency. However, they noted that this outcome is not guaranteed.
Others are less optimistic about the consequences. Neil Dutta, head of U.S. economics at the Renaissance Macroeconomics research group and consultancy, mentioned in a note that, beyond the unwinding of the “Trump bump” for the economy post-election, some negative economic trends that were already in motion are continuing to unfold.
He pointed out that the job market is continuing to weaken, as the percentage of individuals working part-time due to economic reasons — meaning those who seek additional work but cannot find it — has risen to a post-pandemic peak of 8%, while the average number of hours in a typical workweek has dropped to the lowest point since June 2010.
“In summary, there is increased slack in the labor market, which will exert downward pressure on wages and salaries,” Dutta explained.
On Wednesday, the Bureau of Labor Statistics is set to release inflation data for February. Nonetheless, the Federal Reserve has already indicated that it expects price growth to remain elevated.
“The route to achieving a sustainable return of inflation to our target has been turbulent, and we anticipate that it will remain so,” Fed Chair Jerome Powell stated last week.
