When most people hear stagflation, they think of the 1970s: gas lines, 15% mortgages, and stock markets that went nowhere for a decade. Today isn’t that — but the warning signs are flashing again. Economists are calling it stagflation lite: slow growth, sticky inflation, and policymakers running out of easy answers.
The U.S. economy is projected to grow just 1–1.5% in 2025. Inflation has cooled from its 2022 peak but is proving stubborn around 3–3.5%, above the Fed’s target. Meanwhile, wages are stagnating, leaving households squeezed.
Why This Time is Different (But Still Painful)
- Energy isn’t the only choke point. In the ’70s, it was oil shocks. Today, it’s tariffs, trade wars, and supply chains.
- Central banks react faster. The Fed is no longer “behind the curve” for years at a time, but political pressure could still derail its independence.
- Technology cushions the blow. AI, automation, and productivity gains act as small deflationary offsets.
But the dynamic is the same: inflation erodes purchasing power while growth stalls. That’s the stagflation squeeze.
“Stagflation lite = slower growth + sticky inflation. Not the 1970s, but still a squeeze on households.”
The Fiscal Side of Stagflation: Washington’s Credibility Problem
Here’s where things get ugly. For decades, economists like Milton Friedman warned that government spending itself is the real tax on the public. You either pay through higher taxes today or inflation tomorrow.
Enter the Department of Government Efficiency (DOGE) — the controversial watchdog inspired by Elon Musk’s push to cut waste. DOGE has flagged fraud in Social Security programs, wasteful USAID contracts, and billions in pork-barrel spending.
Add to that what the GAO (Government Accountability Office) has said for years: many federal programs are “high-risk” for fraud, mismanagement, or duplication. Trillions of dollars slosh around Washington without clear accountability.
So here’s the blunt question: why should households accept higher mortgage rates and credit card bills while Washington refuses to cut its own waste?
- Cutting waste would cool deficits without choking growth.
- Lower deficits would relieve Treasury issuance pressure and help tame inflation expectations.
- Restoring credibility would strengthen the dollar and calm markets.
But instead, the political incentives reward more spending, not less. Congress protects pork, contractors lobby for bigger budgets, and voters resist cuts to “their” programs. And so the Fed tightens policy, leaving households to bear the cost.
“Milton Friedman was right: gov’t spending is inflation. Cut the waste, and stagflation eases. Ignore it, and households pay the price.”
Who Gets Hurt & Who Wins in Stagflation
Hurts:
- Bondholders (inflation erodes returns).
- Consumers without wage growth.
- Debt-heavy companies.
- Exporters hit by tariffs.
Wins:
- Commodities (gold, oil, agriculture).
- Companies with pricing power (staples, healthcare, utilities).
- Select emerging markets (India, SE Asia).
- Alternatives like infrastructure & real assets.
“Stagflation punishes bondholders + consumers, but rewards commodities, pricing power, and global plays.”
Five Strategies to Beat Stagflation
- Own real assets (commodities, gold, infrastructure).
- Stick with pricing power (companies that can raise prices).
- Diversify globally (don’t get stuck in U.S. stagnation).
- Keep duration short in fixed income.
- Stay tactical, not passive — broad index funds may lag.
“The stagflation playbook: diversify, go global, own real assets, shorten duration, and be tactical.”
Final Word
Stagflation lite isn’t as dramatic as the 1970s, but it’s dangerous in a different way — a slow grind that eats away at living standards. The Fed can only do so much. Without fiscal discipline — without Washington tackling waste and overspending — the burden keeps falling on ordinary Americans.
That’s why understanding the macro picture matters. Inflation, deficits, Fed decisions — they hit your portfolio, your mortgage, and your grocery bill.
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Because in stagflation, knowledge isn’t just power. It’s protection.
“Stagflation is a slow grind. Without fiscal discipline, households carry the cost. Stay informed, stay tactical, and stay ahead.”
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