Fed warns of potential stagflation in US economy

The U.S. Federal Reserve has raised concerns about the economy, warning about the possibility of "stagflation." This term refers to a situation where there is high inflation and stagnant economic growth. Recent tariffs introduced by former President Donald Trump have prompted these worries. Federal Reserve officials have noted that the economy may be showing signs of mild stagflation. Some economists believe that the strong rebound following the pandemic might be losing momentum. The ongoing tariffs could lead to increased inflation and a slower economy, making the situation even more complicated. Stagflation was a major issue in the 1970s, characterized by high inflation and high unemployment. It presents a big challenge for policymakers because actions to control one aspect can worsen the other. The term combines "stagnation," which indicates slow economic growth, and "inflation," which means rising prices. Currently, the labor market and inflation are closely tied. Low unemployment rates can help cushion the effects of rising prices, but high unemployment creates difficulties for businesses in passing on costs to consumers. The Federal Reserve is facing tough choices, as their goal is to manage both inflation and employment. Fed Chair Jerome Powell stated that while inflation is increasing due to tariffs, the current situation is not like the 1970s. He emphasized that inflation expectations remain stable and that the Fed will closely monitor the situation. The Fed is aware of the potential risks but does not believe the economy is heading toward a severe stagflation scenario at this point.