Introduction to Stagflation
Stagflation is a term used to describe an economy that is experiencing stagnant growth and high inflation at the same time. For a while, it was just a concept used to describe the United States economy in 2025, but now there are real signs that it is actually happening. The labor market and consumer prices are both showing signs of stagflation, which is painting a grim picture for the near future.
The Labor Market
The hiring rate in the US, which is the number of hires as a percentage of total employment, has fallen to levels that are typically seen during a recession. According to Torsten Slok, the chief economist at Apollo, the hiring rate has plunged to levels that were last seen during the 2020 pandemic crash and is now approaching the lows seen during the Global Financial Crisis. This means that job growth is slowing down and unemployment is rising. Slok has warned that the labor market is nearing a standstill, where workers are not getting hired or changing jobs.
Inflation
At the same time, inflation remains high. An analysis by Apollo found that 60% of the components that make up the Consumer Price Index (CPI) are rising at an annualized rate above 3%, which is above the Federal Reserve’s target of 2%. While this is an improvement from recent months, it shows that inflation is still a problem. The persistence of high inflation is a concern, and Slok has asked if a second inflation surge is emerging, referencing the first surge that began in 2021 and peaked in mid-2022.
The Fed’s Response
The Federal Reserve has shifted its focus towards stable employment, after lowering interest rates by 25 basis points last month. The Fed is expected to cut interest rates again in October and December, due to concerns over rising unemployment and signs of a cooling labor market. However, the Fed’s recent decision has been confusing, with mixed messages coming from policymakers. They have projected lower unemployment by 2026, but also warned that downside risks to employment have increased.
The Complexity of the Economy
The economy is becoming increasingly complex, with AI-driven productivity gains boosting overall growth but reducing demand for entry-level roles, particularly among younger workers. This means that the economy looks strong on the surface, but is actually uneven beneath the hood. The Fed is finding it difficult to balance inflation control with job stability, and the situation is becoming more challenging.
Conclusion
In conclusion, the US economy is showing real signs of stagflation, with stagnant growth and high inflation. The labor market is slowing down, and inflation remains a problem. The Fed is trying to respond, but the situation is complex and challenging. As the economy continues to evolve, it will be important to monitor the situation closely and adjust policies accordingly. The future of the US economy is uncertain, but one thing is clear: stagflation is no longer just a concept, it is a reality that needs to be addressed.
