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CNBC
13-05-2025
- Business
- CNBC
Stagflation is a looming economic risk—here's what it may mean for your money
The U.S. economy is still in a "strong position" despite "heightened uncertainty," according to the Federal Reserve's latest assessment. Yet there's a looming economic risk the U.S. hasn't meaningfully faced for decades — stagflation. "The risks of higher unemployment and higher inflation appear to have risen," Federal Reserve Chairman Jerome Powell said on May 7. Those two factors — along with slower economic growth — are the definition of stagflation. Stagflation is not here yet. The unemployment rate is low and inflation has come down, though it is still higher than the Fed's 2% target, Powell noted last week. Signs that the economy is in a "solid position" prompted the central bank to leave the short-term federal funds interest rate unchanged. Swiftly shifting tariff policies are the main threat prompting experts to sound stagflation warnings. Uncertainty related to tariffs is also a strong factor contributing to stagflation risks, according to Greg McBride, chief financial analyst at Bankrate. "Uncertainty, in and of itself, is a drag on economic growth," McBride said. Businesses may react by not hiring, not expanding production, not making investments and otherwise waiting for the forecast to change, he said. "Even if a lot of [the tariffs] never actually come to fruition, this period of uncertainty itself is a headwind to the economy," McBride said. More from Personal Finance:How consumers are preparing for an economic hit Trump eyes tax hike on wealthyHow to land a job in 'low firing, low hiring' market Stagflation was last a major issue for the U.S. economy in the 1970s as the country contended with the economic fallout of the Vietnam War, the loss of manufacturing jobs and spikes in oil prices. While different factors are present today, stagflation is a "more pronounced risk than at any time over the past 40 years," Greg Daco, chief economist at EY Parthenon and vice president at the National Association for Business Economics, recently told Meanwhile, consumer confidence sank to its lowest reading in five years as tariffs impacted individuals' outlook and employment confidence, according to the Conference Board's April survey. Nevertheless, total retail sales were up in April, both month over month and year over year, as consumers moved up purchases in anticipation of tariffs prompting higher prices, according to the CNBC/NRF Retail Monitor. Stagflation's effects would be felt across the U.S. economy. However, there are several ways individuals can minimize their personal exposure ahead of those risks, experts say. Eliminating credit card or other high-interest debts like home equity loans can help create more room in your budget, particularly as interest rates stay put for now. "If stagflation comes to pass, you're going to need that breathing room, because inflation will be high, and prices for all your expenses will be moving higher," McBride said. Most respondents — 65% — to the May CNBC Fed Survey said they expect the Fed will lower interest rates if stagflation risks come to pass. With interest rates holding steady, cash savers still have a unique opportunity to access higher returns. Top-yielding online savings accounts are still offering interest rates that are above the rate of inflation, according to McBride. That may not always be the case if interest rates come down and the rate of inflation picks up. Having cash set aside can help prevent the accumulation of high-cost debt or the need to prematurely raid retirement accounts in the face of income disruptions, rising expenses or other unexpected costs, McBride said. Pending tariffs could mean rising prices on a variety of goods from leather goods to apparel to cars. That may tempt consumers to want to rush to buy the products they anticipate they will need, in order to save money. But buyer beware: So-called "panic buying" can mean you shell out more money than you otherwise would by purchasing more than you need.
CNBC
06-05-2025
- Business
- CNBC
The U.S. is 'not a good place to hide' in a slowdown, JPMorgan says. The Fed is on the clock
Federal Reserve Chair Jerome Powell and other members of the U.S. central bank are meeting Tuesday and Wednesday, trying to chart a path where the U.S. can avoid both a recession and sticky inflation. There are signs that Wall Street may be a bit too confident that the Fed will hit the mark without hurting the economy. JPMorgan strategist Mislav Matejka said in a note to clients Tuesday that, after a period of high volatility followed by a long winning streak, the U.S. stock market is still trading at optimistic levels. "[The S & P 500] is still trading at 21x forward, on 10% EPS growth expectation for this year, and 14% for next. That is far from pricing in any meaningful recession fears," Matejka said. .SPX 3M mountain The S & P 500 is well off its lows from early April. If the U.S. does fall into a recession, global economic growth will take a hit too, and take a bite out of foreign stock markets as well. But relative to historical patterns, the U.S. "is not a good place to hide," Matejka said. "If markets relapse into weakness, the US has typically held up better than other regions during risk-off periods, but this time around Tech and USD might not be the 'safe' havens," the note said. Some areas of the economy — most importantly the labor market — appear to be holding firm, meaning that a recession for the U.S. is still not a guarantee. But there does seem to be a growing fear that U.S. officials are running out of time to avoid a serious slowdown. The latest CNBC Fed Survey shows expected odds of a recession have jumped to 53% from 22% in January. The same survey shows the majority of respondents expect the Fed to cut rates when growth falls, even if there is upward pressure on inflation. And there are plenty of data points to hang those worries on. Supply chain data shows a sharp decline in both imports and exports from U.S. ports. Last week the Conference Board's consumer expectations index fell to its lowest level since 2011 . To be sure, using the price-to-earnings ratio of the stock market is not a perfect science, and the uncertainty around earnings makes valuation analysis "tricky for the time being," said Kevin Gordon, senior investment strategist at Charles Schwab. Still, that same uncertainty around trade policy can lead to real economic pain. "I wouldn't say we're priced for a recession right now, but there is a risk that the longer these delays roll on, the higher the likelihood that this economic weakness takes on a life of its own and can't necessarily be saved by some huge tariff announcement or some huge trade deal," Gordon told CNBC.
CNBC
06-05-2025
- Business
- CNBC
Wobbling economy will push the Fed to cut interest rates later this year, CNBC survey finds
Amid a decidedly stagflationary forecast, including higher inflation and unemployment and surging odds of recession, respondents to the May CNBC Fed Survey still believe the Federal Reserve will cut interest rates this year and next. Asked how the Fed will respond to not only persistently higher prices from tariffs but also weakening growth and employment, 65% of say the Fed will cut rates to address the economic weakness despite the inflation. That's up from 44% in the March survey when the majority thought the Fed would hold in that scenario. Only 26% say the Fed will hold rates when faced with the stagflation dilemma and just 3% believe the Fed will hike rates. The 31 respondents, who include fund managers, analysts and economists, see the Fed funds rate declining to 3.71% by year end and 3.36% by the end of 2026 for a near 100-basis point decline over the period from the current level of 4.33%. The odds of recession in the next year rose to 53%, up from 22% in January for the biggest two-survey increase since 2022. That's when the Fed was just beginning its sharp rate hikes to battle inflation. The consumer price index is seen ratcheting up from the current level of 2.4% to 3.2% by year end, but declining next year back to 2.6%. At the same time, the unemployment rate is expected to rise from 4.2% to 4.7% and hold at about that level in 2026. GDP is forecast at just 0.8% on average for this year, down from last year's 3.1% growth rate. "The Fed must project an inflation fighting stance, but in most circumstances they will react more quickly to labor market weakness," said Lou Brien, strategist with DRW Trading Group. "So, in the current circumstance, when the unemployment rate rises a few more tenths, and/or payrolls decline, the Fed will lower rates and suggest economic weakness will dampen inflation." But those cuts, said Richard Bernstein of Richard Bernstein Advisors, would mean the Fed "giving up on the 2% inflation target, perhaps permanently." Fed officials have insisted they would not adjust the 2% target. The average respondent sees growth rebounding to around 2% in 2026. Some say that's because other, more positive parts of the Trump administration's economic policies will kick in. "By the second half of 2026, we expect that the tax and deregulation policies pursued by the administration will return the economy to a better trajectory of growth," said Thomas Simons, chief U.S. economist at Jefferies. Respondents do not believe stocks are currently priced correctly for the more downbeat outlook this year with 45% saying equities are not priced for a recession and 52% saying they are only somewhat correctly priced. Overall, 69% believe the stock market is significantly or somewhat overpriced, up from 56% in the March survey. The average forecast sees the S&P finishing flat on the year relative to current levels but rising nearly 11% by the end of 2026. "Although equity prices are undervalued, the level of stock market optimism remains too high. Most likely there are further declines ahead," said Hugh Johnson of Hugh Johnson Economics. Some of the increased bearishness on the economy looks linked to the increasing belief that some form of a high tariff regime will be permanent. A 63% majority of respondents to the CNBC Fed Survey believe across-the-board 10% tariffs will likely remain on all U.S. imports after the completion of new trade deals. Strong majorities see tariffs as a negative for the US growth, employment and inflation. "Uncertainty surrounding tariff policy and objectives are weighing on planned investment and new orders," said Constance Hunter, chief economist at the Economist Intelligence Unit. Jack Kleinhenz, chief economist at the National Retail Federation adds, "Everyone is worried, not yet sure that anyone can predict the storm path of tariffs and their impact on the economy given so much uncertainty. Hopefully, price sensitive consumers can withstand the potential threatening nature of tariffs." Complicating the outlook: 74% of those who see tariffs as negative for the economy do not believe that promised deregulation and tax cuts from the administration will offset the negative impact of tariffs. Drew Matus chief market strategist at MetLife Investment Management says, "Tariffs should have been sequenced post tax cuts so the negative shock was following a positive shock." Meanwhile, 73% say the combination of the administration's tariff, immigration and foreign policies have damaged the U.S. brand in a way that is negative for the image of companies overseas and 83% say they are a negative for the attractiveness of U.S. assets.
CNBC
06-05-2025
- Business
- CNBC
CNBC Fed Survey: 77% of respondents say the Fed should keep rates unchanged
CNBC's Steve Liesman joins 'Squawk Box' to break down the latest results from the CNBC Fed Survey.
Yahoo
01-05-2025
- Business
- Yahoo
Is the U.S. officially in a recession?
Speculation of a potential recession has been circulating for some time, but conversations have reached a fever pitch in recent weeks. With a new administration in the White House, economists are scrambling to predict what markets will do in response to new policies and an uncertain financial environment. The U.S. economy contracted by 0.3% in the first quarter of 2025 — the first decline since early 2022 — partly due to a surge in imports as businesses rushed to stockpile goods ahead of President Trump's newly announced tariffs. Further, in late March and early April, global investment bank Goldman Sachs raised its estimate of the likelihood of a U.S. recession twice — from 20% to 35%, then up to 45%. With predictions like these (plus not-too-distant memories from the Great Recession), it's no wonder fears of another economic downturn are rising. So, is the U.S. in a recession? If not, is a recession coming? And finally, what can you do to prepare? A recession is a period of declining economic activity, commonly defined by at least two consecutive quarters of economic contraction. Although difficult to experience, recessions are a normal part of the economic cycle. According to the definition above, the U.S. isn't currently in a recession. Though the economy contracted in the first quarter of 2025, the Bureau of Economic Analysis estimated the U.S. economy grew by 2.4% in the final quarter of 2024. Time will tell what happens during the second quarter of 2025. If we experience another period of negative economic growth, the U.S. may officially be in a recession by summer. Read more: What is GDP, and why does it matter? Many economists, financial experts, and investment banks are predicting increasing odds of a U.S. recession in the near future. In addition to Goldman Sachs' estimation of a 45% likelihood of a looming recession, other major players are issuing similar odds. For example, the world's largest investment bank, JPMorgan, recently raised its predicted odds of a recession from 40% to 60%. And according to a CNBC Fed Survey, the risk of recession grew to 36% in March from 23% in January. As with any uncertainty, the likelihood of an impending recession depends on who you ask. But even though downturns are impossible to predict with complete accuracy, the following metrics can provide some hints: Consumer sentiment: Measures of consumer sentiment often correlate with the health of the economy, and a drop in consumer sentiment often precedes a recession. Currently, consumer sentiment is low: A measure from The Conference Board, a business membership group, shows consumer sentiment dropped to a 12-year low in March. Policy uncertainty: General uncertainty can affect the economy in several ways. For example, it can lead to decreases in hiring, investing, and spending, all of which can slow the economy. Changes in the administration can bring about plenty of uncertainty, and the recent inauguration was no exception — especially regarding tariffs and trade. Inflation: Recessions can also follow inflationary periods, which the U.S. has been experiencing over the past few years. Inflation can cause banks to raise interest rates, slowing borrowing and the economy in general. This, in turn, can lead to layoffs, a decrease in spending, higher unemployment, and, potentially, a recession. Read more: How does inflation impact savings and CD rates? Regardless of whether we're headed for a recession, it doesn't hurt to prepare. General financial health goes a long way during hard times, so use the following tips to get your finances in order: Build your emergency fund: It's always smart to save cash for emergencies, but it's particularly important to have an emergency fund when a recession hits. Having plenty of cash available to make ends meet can make the difference between staying afloat and sinking into debt. If you don't have at least six months' worth of essential expenses in a high-yield savings account, make it a priority. Audit your spending: Economic uncertainty is a good signal to audit your spending, which can help you tighten the purse strings if a recession does hit. Review your bank and credit card statements to identify unnecessary spending, forgotten subscriptions, and bills you may be able to negotiate. Pay off high-interest debt: Having a monthly debt payment adds another bill to your budget, which can add unwelcome stress during tough financial times. If possible, put any extra money toward paying off high-interest debt, such as credit cards and personal loans. The quicker you pay off the debt, the sooner you'll have more cash to put toward savings or other goals. Plan for big expenses: A recession is a bad time for big expenses to sneak up on you, such as an annual insurance premium or a new set of tires. Do yourself a favor and plan ahead. Add any major, irregular expenses to your budget and save for them each month. It's much easier to save $100 each month than to scramble to find $1,200 when a big bill is due. Don't panic: If economic uncertainty and talk of a potential recession make you nervous, you're not alone. Anxiety and fear are natural reactions to the threat of financial hardship. But it's important not to let your emotions lead to drastic financial decisions, such as selling all your investments. Typically, the best thing you can do for your finances is to keep calm and stay the course. Read more: How to recession-proof your savings
