Emily Garr Pacetti

@federalreserve Chairman Jay Powell bristled at the use of the word “stagflation”due to the difference between now and the extreme pain of the 1970s. That does not mean a mild bout of stagflation is not possible or even probable due to the war and its ripple effects, which will take many months to unwind and bring oil supplies back in balance on a global scale. What is stagflation - a toxic mix of rising inflation, escalating unemployment and stagnate or a contraction in growth. History doesn’t have to repeat but can rhyme. The pain that means for households today is different but not necessary less than that endured in the 1970s. The psychological blow is coming against backdrop of decades and lagging wage gains, which collided with the post pandemic inflation. The labor market has shown some signs of life, but that reflects pre-war conditions. We entered the year with a tailwind of a catch-up to the six-week gov’t shutdown, fiscal stimulus & a sense of where tariffs will ultimately land, easing uncertainty. That has hit headwinds of the war, which is more than an oil shock - it is roiling supply chains the world over. It will take weeks to months to get disrupted energy infrastructure up and fully running. Years for repairs to damaged infrastructure. In the interim, we will see scarcities, notably across the developing world worsen, which adds legs to the shock. The blow of added inflation, which has some legs and squeezes profit margins, while pushing prices up is hard. The bump in employment, tax refunds via tax cuts last year act as a buffer but dissipate more rapidly than the residual effects of the war. That adds insult to injury to the economic anxiety, which was high prior to the war. So, no, this isn’t the 1970s, but it feels really bad relative to what most consumers have known.