Experts see higher risk of stagflation. Here is what it means for your money

Tired consumers, already struggling with high priceNow cope with an additional potential risk: stagflation.

Stagflation – An economic term used to describe a combination of inflation up, slower economic growth and high unemployment – can be on the horizon, depending on economists.

“Trump's White House's tariff policy has certainly increased the risk of higher inflation and lower growth,” said Brett House, professor of professional practice in the Columbia Business School economy.

Trump administration's pricing policies feed the stagflation conditions, according to the last CNBC Rapid Updatewhich makes an average forecast of 14 economists.

“This is a more pronounced risk than at any time in the past 40 years,” said Greg Daco, chief economist at Ey Parthenon and vice-president of the National Association for Business Economics.

Uncertainty already appears in consumer confidence, said Diane Swonk, chief economist of KPMG.

“We see this kind of stagflation puff, where people are less sure of their work and they are more concerned with inflation on the road,” said Swonk.

Stagflation was a major problem for the American economy in the 1970s, when unemployment rates and inflation both increased while the country was faced with the costly Vietnam War and the loss of manufacturing jobs.

Stagflation in the 1970s is often associated with major oil prices, causing shortages and long lines in service stations. However, some economists argued that it was actually monetary fluctuations This caused stagflation.

The conditions then prompted the president of the federal reserve, Paul Volcker, to implement a spectacular tightening of monetary policy in the late 1970s and 80s known as “Volcker Shock”. Although inflation has decreased as the Fed has grown higher interest rates, the central bank measures have also caused a serious recession – often defined as two consecutive quarters of negative growth in gross domestic product – and more than 10% unemployment.

Stagflation would not occur in the same way today, according to Dan Skelly, head of the Morgan Stanley wealth management market.

The United States is no longer according to foreign oil, said Skelly. In addition, unions, which caused wage price spirals at the time, are no longer such a large part of private workforce today, he said.

The uncertainty about prices can affect the confidence of businesses and consumers, which would encourage spending and investment to slow down, said Skelly. The probability of slowing down growth in the stagflation part is quite high, he said.

However, Skelly said Morgan Stanley expects to see more effects on the stock market through profits than in the economy.

Many companies revise their economic forecasts, including the possibility of a recession, following Trump administration policies, according to a new investigation by the Director General.

Stagflation is not necessarily accompanied by a formal recession; On the contrary, it can be slowed down or stagnant, said House.

The current KPMG forecasts expect a shallow recession, inflation cultivating at the end of the third quarter.

“This is not even what we saw during the pandemic,” said Swonk about the tip of inflation. But it would suffice that the use is slowed down and causes slight access to stagflation, she said.

Stagflation, if that happens, would be the “worst of both worlds”, with unemployment and higher costs, said Daco.

“This represents an important difficulty for many families and businesses across the country,” he said.

Americans can be confronted with a difficult economic period, with slower income growth, reduction in employment prospects, higher unemployment and higher prices, which makes household budgets more difficult, according to House.

To prepare for stagflation, consumers should take all the measures they would have during a recession as well as the measures they take when prices increase, said Sarah Foster, economic analyst at Bankrate.

As prices should increase prices, consumers may be tempted to buy in advance, even large tickets such as cars, laptops, smartphones or even houses.

Before making such purchases, it is important to make sure that it is in your budget, said Foster.

“It is absolutely wise at the moment to buy something you know could be affected by prices for which you have already budgeted,” said Foster.

However, consumers must be careful with regard to “the purchase of panic”, she said, or spending money to save money.

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Instead of upgrading their budgets with purchases, consumers should prioritize the reduction in high interest credit card debt and the creation of an emergency fund. Concentrating first on high interest debt can save long -term money, and having an emergency fund provides a financial security net.

Experts generally recommend putting aside at least six months. Although it can be difficult to remove additional money in the middle of higher prices, the good news is that higher interest rates always provide cash yields by inflation through high -yield savings accounts which are provided by the FDIC, said Foster.

For those who have kept money on the sidelines rather than investing, it is now time to start allocating more risky stocks and assets, given the recent market drop, said Skelly.

“Do not do everything in a day, but start reducing part of this money, now that the values ​​are fairer than they were a month or two,” said Skelly.

Investors who have raised major benefits might want to rebalance more neutral positions now, he said.

There is no guarantee that stagflation will occur.

In 2022, an investigation revealed 80% of economists This stagflation was a long -term risk.

But it was avoided at that time with a mixture of strong economic growth, disinflation and a robust labor market encouraged by the federal reserve, said Daco.

A large part of the risks that appear in today's economic forecasts are the result of White House policies, say economists.

The Trump administration could reduce the risk of stagflation, said Daco, by reducing the uncertainty of the policy, by softening the immigration restrictions that will reduce the offer of labor and will not implement tariffs on the main business partners.

House said the United States had entered 2025 with an “efficient economy”, which he said was threatened by recent political changes in the Trump administration. It is up to the administration to relax these policies and to “prevent stagflation from performing,” he said.

The White House did not respond to a request for CNBC comments.