The American economy crosses an area of turbulence. Between increased inflation and a marked slowdown in growth, a long -forgotten spectrum resurfaces: stagflation. This phenomenon, which combines economic stagnation and price increases, recalls the crises of the 1970s. Today, the new pricing policies of Donald Trump rekindle fears of a return at that time when growth was stopped and when purchasing power eroded at high speed. The American president’s decision to impose heavy taxes on Chinese, Mexican and Canadian imports triggers many questions about its real effects on the economy. While the federal reserve is pushed in its entrenchments, markets vacillate and companies are concerned about the repercussions on their profitability.
Trump's prices: a risky bet on the American economy
The Trump administration has decided to tighten the tone on imports, with customs tariff increases that hit several major business partners. Indeed, the President announced a 25 % increase on products from Mexico and Canada, as well as doubling of customs duties on Chinese imports, now increased to 20 %. “We will finally restore commercial balance and protect our national industries,” he declared during a press conference at the White House.
But in the field, the impact is already felt. According to a report by the Commerce Department, household consumption fell in January, which was its strongest decrease in almost four years. At the same time, production prices have climbed, which has further fueled inflation. Companies are starting to sound the alarm: Target, one of the largest retailers in the country, warned that its margins were going to be “significantly impacted” by the increase in import costs. In the manufacturing sector, the ISM index shows that industrial activity is running out of steam, with a fall in new orders and a flambé of raw materials.
Pressure markets: between uncertainty and flight to refuge values
While the effects of customs tariffs are starting to weigh on the real economy, the financial markets are not to be outdone. Since early March, Dow Jones has lost 4.5 %, which has erased the gains made after Trump's re -election last November. This lower movement reflects the growing distrust of investors, who fear that the American economy will be trapped in a negative spiral which mixes inflation and stagnation. “We observe a collapse of consumer confidence and a surge in uncertainty,” explains Mark Hackett, chief strategist at Nationwide.
Investors react and turn massively to state bonds, which causes a drop in yield of American 10 years to 4.2 %. This phenomenon, known as the rate curve inversion, is historically an avant-length signal of recession. At the same time, other alternative assets benefit from this instability: gold and Bitcoin record an increase, which confirms their status of refuge values 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 dead end. Should it lower its rates to relaunch activity, at the risk of worsening prices? Or on the contrary, maintain them at a high level, even if it means accentuating the economic slowdown? A delicate decision that recalls the difficult choices of the 1970s, when the Fed ended up sacrificing growth to break inflation. In the meantime, companies, investors and consumers remain suspended from the next economic indicators. If stagflation was to be established permanently, it could mark a turn in American monetary and budgetary policy. But beyond the United States, this uncertainty could well spread to world markets, which would create a new cycle of instability.
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