Stubborn inflation and U.S. President Donald Trump¡¯s hard-line trade policies have rekindled fears of stagflation, a worrying mix of sluggish growth and relentless inflation that haunted the U.S. in the 1970s, even as markets remain upbeat on his pro-growth agenda.
The potential return of stagflation, which would pressure a range of assets, has been flagged periodically over the past 50 years but not materialized as a real threat to investor portfolios. While economists and portfolio managers are not ready to say that this time is different, the dreaded scenario has crept back as a key risk for investors in recent weeks, as the prospect of trade wars and punitive tariffs cast a shadow over U.S. growth.
¡°Stagflation has definitely re-emerged as a possibility because we have these policies that could hurt consumer demand even while persistent inflation limits the Federal Reserve¡¯s ability to maneuver,¡± said Jack McIntyre, portfolio manager for Brandywine Global¡¯s fixed income strategies. ¡°It¡¯s not a zero-possibility scenario any more, by a long shot.¡±
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