US Markets Tank As Stagflation Concerns Grow

The American economy is going through a turbulent phase. Between rising inflation and a marked slowdown in growth, a long-forgotten specter resurfaces: stagflation. This phenomenon, which combines economic stagnation and rising prices, recalls the crises of the 1970s. Today, Donald Trump’s new tariff policies reignite fears of a return to that era when growth was at a standstill and purchasing power was eroding rapidly. The American president’s decision to impose heavy taxes on imports from China, Mexico, and Canada raises many questions about its real effects on the economy. As the Federal Reserve is pressed into a corner, markets are faltering, and businesses are concerned about the repercussions on their profitability.

Trump’s tariffs: a risky bet on the American economy

The Trump administration has decided to toughen its stance on imports, with increases in customs tariffs hitting several major trading partners hard. Indeed, the president announced a 25 % increase on products from Mexico and Canada, as well as a doubling of the customs duties on Chinese imports, now raised to 20 %. “We will finally restore trade balance and protect our domestic industries,” he declared during a press conference at the White House.

But on the ground, the impact is already being felt. According to a report from the Department of Commerce, household consumption fell in January, marking its steepest decline in nearly four years. At the same time, producer prices have risen, further fueling inflation. Companies are starting to sound the alarm: Target, one of the largest retailers in the country, has warned that its margins will be “significantly impacted” by the rise in import costs. In the manufacturing sector, the ISM index shows that industrial activity is slowing down, with a drop in new orders and a surge in raw material costs.

Markets under pressure : between uncertainty and flight to safe havens

As the effects of tariffs start to weigh on the real economy, the financial markets are not immune. Since the beginning of March, the Dow Jones has lost 4.5 %, erasing the gains achieved after Trump’s reelection last November. This downward movement reflects the growing distrust of investors, who fear that the American economy may become trapped in a negative spiral of inflation and stagnation. “We are witnessing a collapse in consumer confidence and a sharp rise in uncertainty,” explains Mark Hackett, chief strategist at Nationwide.

Investors are reacting and are turning massively to government bonds, resulting in a drop in the yield on the 10-year Treasury to 4.2 %. This phenomenon, known as an inverted yield curve, is historically a precursor signal of recession. Meanwhile, other alternative assets are benefiting from this instability: gold and bitcoin are both rising, confirming their status as safe havens in times of crisis. Thus, the question is no longer whether the economy will slow down, but rather at what speed and with what intensity.

The acceleration of inflation combined with a slowdown in growth places the Federal Reserve in a strategic deadlock. Should it lower its rates to restart activity, risking exacerbating inflation? Or conversely, maintain them at a high level, potentially worsening economic slowdown? A delicate decision that recalls the difficult choices of the 1970s when the Fed ultimately sacrificed growth to break inflation. In the meantime, businesses, investors, and consumers remain suspended over the next economic indicators. If stagflation were to become established, it could mark a turning point in American monetary and fiscal policy. But beyond the United States, this uncertainty could well spread to global markets, creating a new cycle of instability.