Trump's Tariffs Spark Stagflation Fears: U.S. Economy Braces for Slowdown

The U.S. economy is facing potential headwinds as President Trump's tariff actions on Canada and Mexico could lead to stagflation, a scenario not seen in the country for over five decades. According to Mark Zandi, Chief Economist at Moody's, the U.S. economy may experience a significant slowdown due to reduced consumer and business spending, which is already being impacted by concerns about the economic outlook.

The Atlanta Fed's GDPNow model suggests that the U.S. GDP in the first quarter could contract by 2.8%, which would be the first contraction since Q1 2022. If stagflation were to occur, the Federal Reserve may consider raising interest rates to combat high inflation, similar to the aggressive rate hikes implemented by former Fed Chair Paul Volcker in the early 1980s to tame inflation.

Economists and analysts are closely monitoring the situation, as the potential for stagflation could have significant implications for the U.S. economy and global markets. The Federal Reserve is expected to continue assessing the economic data and adjusting its monetary policy accordingly to maintain stability and growth in the U.S. economy.